If you’re nearing retirement, have retired, or recently left your company for any reason, you should create a 401(k) game plan. Know how your investment options can expand, how to avoid tax traps, and what you’ll do with any company stock in your 401(k). There are many options, and the right one depends on your age, retirement goals, and overall financial situation – here’s what to consider.

You Can Roll Over Your 401(k) Into an IRA

Although you may have the option to cash out of your old 401(k), you will pay tax on those funds at ordinary income rates. This could significantly increase your tax burden and could mean losing out on years of tax-deferred growth in the future.  Instead, you can rollover your old 401(k) into an IRA. This way, you don’t pay tax on what you rollover and can continue making tax-deferred contributions if you earn income. And, you can potentially gain access to more investment options so that you can pursue an investment strategy that better suits you.[1] As you get close to retirement, consider your asset allocation, and learn about alternative investment options – with an IRA, you can invest in practically any stock, mutual fund, ETF, bond, real estate, or security.

You Can Convert Part or All of it to a Roth IRA

Another option is converting part or all of a 401(k) into a Roth IRA. This would mean paying tax on the amount you convert since you’re moving it from a pre-tax account to an after-tax account. Some of the advantages of doing this are enjoying tax-free withdrawals from a Roth IRA in the future and avoiding Required Minimum Distributions (RMDs). And, although your income may have been too high to allow you to contribute to a Roth IRA in the past, Roth income limitations do not apply to this conversion. Keep in mind that you must wait five years to withdraw penalty-free from a Roth after converting.[2]

Consider What to Do with Company Stock

If you have company stock in your 401(k), you’ll need to decide what to do with it when you retire or if you roll your 401(k) into an IRA. If you do roll over your company stock, consider NUA (Net Unrealized Appreciation). The NUA is the difference between the value of the company stock at the time it was purchased or given to you and what it’s worth when it’s transferred out of the 401(k). If you transfer it to an IRA, you won’t pay tax immediately, but you’re liable to pay income tax on the stock’s full NUA when you sell it. Alternatively, if you transfer it to a brokerage account, you’ll pay income tax on it immediately on the cost basis, and when you sell it, you’ll pay long-term capital gains. Also, consider how much the stock has increased in value, the financial standing of your company, and if you would have as much invested in it if you didn’t work there.

A financial advisor can discuss more options and reasons to have a 401(k) strategy. If you would like to know about your 401(k) options, click here to sign up for a complimentary financial review. At SHP Financial, we can work with you to decide on allocation and contribution strategies, help you create a financial plan after you stop receiving a paycheck, and provide options for turning your savings into lifetime retirement income.

[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


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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