“Orphan” Retirement Plans

One of the most popular vehicles for retirement saving is the 401(k) (or similar) plan offered by many employers.  When people change jobs they often make one of two errors.

  • They cash the 401(k) out.  This triggers not just a tax, but a 10% penalty for people under 59 ½.  Many people find out that they lose about 40% of their savings to the IRS instead of saving to fund a retirement nest-egg. 

If they don’t cash it out, they make mistake #2:

  • Leave it behind, running on auto-pilot.  There are usually a few options available in 401(k) plans and most people fail to optimize their investment decisions when they put money into them.  The wise choice is to roll the 401(k) over into a Rollover IRA.  This allows you to take advantage of the thousands of investment choices open to IRAs, and get professional investment advice on managing your retirement assets. 

However, this rollover has to be done properly or you could still lose part of your plan to the IRS.  To help you make the proper decisions about your “orphan” 401(k), call a financial professional.

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