If you’ve saved a substantial amount in a tax-deferred retirement account, it will no doubt be instrumental in retirement. The next step is to strategize how you’ll use those savings. There are several important things to know about your 401(k), such as how much you can contribute, options for your 401(k) when you leave your job, and how RMDs work. Here are four reasons to have a 401(k) strategy.

You Have Options for Old 401(k)s

When you leave a job, you can either cash out of your 401(k), roll it over into a 401(k) at your new job, leave your money in the old 401(k) with your former employer, or roll it over into an IRA.[1] While you can usually leave your 401(k) with your former employer, this can complicate your finances if you end up with multiple 401(k)s. Cashing out could mean a large tax burden since funds will be taxed as ordinary income, but you could roll your old 401(k) into a new one and avoid paying tax on the funds directly rolled over. If you are retiring, aren’t going to a new job right away, or want more investment options, you can roll your old 401(k) into an IRA without paying tax on the funds rolled over.[2]

You Can Make “Catch-Up” Contributions Starting at Age 50

Starting at age 50, you can contribute more to your 401(k) each year. In 2021, workers under 50 can contribute up to $19,500 to a 401(k), 403(b), most 457 plans, or Thrift Savings Plan. Workers 50 and over can contribute an additional $6,500 in 2021, for a total of $26,000 per year.[3] Those age 50 and older can contribute up to $7,000 to an IRA.[4]

401(k)s Distributions Are Taxable

You’re probably worried about your 401(k) in the event of a market crash, but what about when you pay taxes on distributions? Taxes could be your biggest expense in retirement. Distributions from traditional retirement accounts such as IRAs, 401(k)s, 403(b), 457, and Thrift Savings plans are taxed as ordinary income. If you plan on getting most of your retirement income from these sources, keep in mind that it can potentially affect your tax burden in retirement. Also, remember that at age 72, you will most likely be required to take minimum withdrawals from your tax-deferred retirement accounts. If we see taxes rise in the future, a withdrawal strategy for your tax-deferred retirement accounts could be particularly important.

You Need to Name a Beneficiary to Your Retirement Accounts

Many people may not know that their will does not control who inherits all of their assets, such as retirement accounts, life insurance, and annuities. In order to pass these on, you must name a beneficiary. If you don’t, these assets will likely be paid to your probate estate, possibly triggering income tax. Don’t forget to distinguish family members of the same name with signifiers like Sr. and Jr., and update last names in the cases of marriage and divorce.

In retirement, you will transition from savings to spending. This is a huge financial transition, and a comprehensive retirement plan is essential. At SHP Financial, we can help you create a 401(k) strategy, tax burden minimization plan, and estate plan as part of an overall financial strategy. Click HERE to sign up for a complimentary financial review to get your questions answered.

[1] https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-termination-of-employment

[2] https://www.investopedia.com/ask/answers/12/401k.asp

[3] https://www.irs.gov/newsroom/401k-contribution-limit-increases-to-19500-for-2020

[4] https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-401k-and-profit-shar-ing-plan-contribution-limits


The content presented is for informational purposes only and is not intended as offering financial, tax, or legal advice, and should not be considered a solicitation for the purchase or sale of any security. Some of the informational content presented was prepared and provided by Lone Beacon Media, LLC dba Lone Beacon, while other content presented may be from outside sources believed to be providing accurate information. Regardless of source no representations or warranties as to the completeness or accuracy of any information presented is implied. Lone Beacon Media, LLC is not affiliated with the Advisor, Advisor’s RIA, Broker-Dealer, or any state or SEC registered investment advisory firm. Before making any decisions you should consult a tax or legal professional to discuss your personal situation.

Investment Advisory Services are offered through SHP Wealth Management LLC., an SEC registered investment advisor. Insurance sales are offered through SHP Financial, LLC. These are separate entities, Matthew Chapman Peck, CFP®, CIMA®, Derek Louis Gregoire, and Keith Winslow Ellis Jr. are independent licensed insurance agents, and Owners/Partners of an insurance agency, SHP Financial, LLC.. In addition, other supervised persons of SHP Wealth Management, LLC. are independent licensed insurance agents of SHP Financial, LLC. No statements made shall constitute tax, legal or accounting advice. You should consult your own legal or tax professional before investing. Both SHP Wealth Management, LLC. and SHP Financial, LLC. will offer clients advice and/or products from each entity. No client is under any obligation to purchase any insurance product.


The content presented is for informational purposes only and is not intended as offering financial, tax, or legal advice, and should not be considered a solicitation for the purchase or sale of any security. Some of the informational content presented was prepared and provided by tMedia, LLC, while other content presented may be from outside sources believed to be providing accurate information. Regardless of source no representations or warranties as to the completeness or accuracy of any information presented is implied. tMedia, LLC is not affiliated with the Advisor, Advisor’s RIA, Broker-Dealer, or any state or SEC registered investment advisory firm. Before making any decisions you should consult a tax or legal professional to discuss your personal situation.Investment Advisory Services are offered through SHP Wealth Management LLC., an SEC registered investment advisor. Insurance sales are offered through SHP Financial, LLC. These are separate entities, Matthew Chapman Peck, CFP®, CIMA®, Derek Louis Gregoire, and Keith Winslow Ellis Jr. are independent licensed insurance agents, and Owners/Partners of an insurance agency, SHP Financial, LLC.. In addition, other supervised persons of SHP Wealth Management, LLC. are independent licensed insurance agents of SHP Financial, LLC. No statements made shall constitute tax, legal or accounting advice. You should consult your own legal or tax professional before investing. Both SHP Wealth Management, LLC. and SHP Financial, LLC. will offer clients advice and/or products from each entity. No client is under any obligation to purchase any insurance product.
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