Pre-Retirement Escape Plan
With the recent market meltdown, many people found their 401(k)/403(b) balances dropping rapidly with few, if any, good choices within their plan to help deal with the situation.
To be fair, IRA balances dropped too, but an IRA typically has many more choices to invest your money in and some have the availability of guaranteed lifetime income that does not get reduced just because the market drops. Some also have guaranteed death benefits to protect beneficiaries if the IRA owner dies while the market is down.
So far in 2022, my clients have protected guaranteed income balances and death benefits from 30-50% higher than their account balances. Talk about peace of mind! Of course, there is a cost for this protection, which I explain thoroughly, and my clients have found well worth it.
There is a little-known IRS distribution rule called an “in-service withdrawal” that allows 401(k)/403(b) participants over age 59 ½ to roll over some or all of their plan balances to a much more flexible personal IRA. The IRS allows it and most plans permit it. Check with yours to see if it does.
I have listed some features of 401(k)’s, 403(b)’s and IRAs to show you the differences. Contact me if you or someone you know is interested in learning more!
- Lower fees
- Payroll deduction contributions if still working
- Limited investments and switching privileges
- Mandatory 20% federal tax on withdrawals
- Loans possible if still employed
- Protection from creditors
- Contact is online or wading through an 800 number menu to finally talk to a stranger
IRA with an advisor:
- fees are a little higher for fund management
- many more investment choices and switching freedom
- no mandatory 20% federal tax withholding on withdrawals
- protection from creditors
- Payroll deduction not widely available
- Loans not available; must take withdrawal if you need money from it
- Availability of guaranteed lifetime income and death benefit
- QCD’s (Qualified Charitable Distributions) available over age 70
Marc R. Gillespie, CLU, ChFC, CFS, MSM, CLF