What to Do With Old Retirement Plans

What are my options?

• Keep the assets where they are
• Withdrawing the assets (taxes are generally due upon withdrawal and any applicable tax penalties that may apply)
• Rollover assets to an employer-sponsored retirement plan that accepts rollovers
• Rollover to another eligible vehicle such as an IRA

Prior to any rollover, carefully consider the benefits of existing and potentially new retirement accounts and any differences in features, costs and tax implications.

What is an IRA?

In addition to your  403(b), another retirement savings tool is an Individual Retirement Account (IRA). An IRA offers tax advantages similar to your 403(b) and allows invested contributions to grow tax deferred for retirement. The contribution limits in 2021 for age 50+ is $7,000 a year, or $6,000 for those younger than 50 (subject to income limitations).

There are two different types of IRA’s: Roth and traditional. A traditional IRA is similar to your 403(b). Contributions are on a pre-tax basis and your investments grow tax-deferred until taxed upon withdrawal in retirement*. A Roth IRA is different because contributions are after-tax, or after you have paid income taxes, but your investments grow tax-free and are withdrawn tax-free.**

Determining which one is right for you involves looking at what tax rate you pay now versus what tax rate is expected in retirement. However, there are IRS rules on who is eligible to contribute to an IRA. In 2021 the income limit for a Roth IRA is income of $140,000 (single) or $208,000 (joint). For the Traditional IRA, you can always contribute no matter your income, but you lose the tax deductibility of contributions when your income is over $76,000 (single) or $125,000 (joint) in 2021.

* Distributions from traditional IRA’s and employer sponsored retirement plans are taxed as ordinary income and, if taken prior to reaching age 59 ½, may be subject to an additional 10% IRS tax penalty.

** To qualify for the tax-free and penalty-free withdrawal or earnings, a Roth IRA must be in place for at least five tax years, and the distribution must take place after age 59 ½ or due to death, disability, or a first time home purchase (up to a $10,000 lifetime maximum). Depending on state law, Roth IRA distributions may be subject to state taxes.

What is a Variable Annuity?

Variable annuities are long-term, tax-deferred investments issued by insurance companies. Similar to the 403(b) and IRA, they allow contributions to be invested and grow tax deferred for retirement, but with no limits on contributions.

While contributions have the opportunity to grow faster and compound over time due to tax deferral, contributions are on an after-tax basis and earnings are taxed when withdrawn in retirement. Taxation should be considered carefully before making any investment decision.

Regular taxable investments are called “tax-inefficient” due to all the ongoing earnings – capital gains, dividends, interest - being taxable when earned. This is especially true for bond investments, where interest is taxed at your full income tax rate. This makes variable annuities a good option for those looking to maximize their retirement savings but are ineligible for Traditional or Roth IRAs, and especially for those who want more conservative bond investments. But the tax deferral benefits of 403(b)s and IRAs make variable annuities the third priority for your retirement contributions.

So What Are My Rollover Options?

Need Help Deciding Which Is Best For You?

Defining your short-term needs and long-term goals is the first step in our process with you. As you articulate your vision, we’ll come to understand what kind of financial solutions make sense for you. Before moving forward with any one strategy, you’ll have a deeper understanding of the options available to you, so you can make an educated decision.

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