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Get The Money Out Of Your 401k ASAP || Should you leave your money in your 401k or move it to an IRA - YouTube
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leave your money in your 401k
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take your money out of your 401k let's
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talk about it
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hello everybody joe orbit coming at you
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and today we are going to discuss your
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401k now as always when i say 401k i can
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also be talking about a 401a or a 403b
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or a 457 plan
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or a simple ira or a separate we're
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basically discussing your qualified
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retirement plan meaning your retirement
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plan you have at work
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so does it make sense
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to leave the money in the plan now
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there's typically two times that you can
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remove the money from your plan
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number one is if you leave your place of
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work so you're no longer work there or
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you're retired then you have the
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opportunity if you so desire to roll the
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money out of that plan the second time
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you have that you can take the money out
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of the plan is when you achieve age 59
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and a half because if you've watched my
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other videos if you haven't watched my
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videos on iras make sure you watch that
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one
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we know that when you defer money inside
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of a retirement plan the irs requires
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you to leave that money in there until
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age 59 and a half and that's the point
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when you're allowed to access the money
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without a 10 penalty now there's other
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ways you can access some money without a
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10 penalty and i'll do a video on 72 t
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distributions but we're not going to
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cover that today we're going to focus on
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you left your place of work and you can
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access your 401k or you're now 59 and a
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half and you can access a 401k even if
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you're still working there they call
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that an in-service
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withdrawal so that should be available
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to you now the irs says it's available
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not all employers allow this but you
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should check this check your employer
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and see if you are 59 and a half can you
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do an in
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service withdrawal so today we're going
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to talk about the cons of doing an
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in-service withdrawal or rolling your
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401k over and then we're going to cover
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the pros
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of removing the money from your 401k
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let's get started so how do you get the
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money out of a 401k and into an ira i
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typically recommend you do that to what
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we call a
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trustee to trustee transfer and what i
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mean by that is you tell the current
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custodian the person who's holding your
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401k
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to transfer the money directly to a new
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custodian you do not want to do a 60-day
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rollover why not because recently there
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was a tax law change and you're only
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allowed one 60-day rollover per 401k to
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ira
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per social security number per
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365 days so basically you can only do
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one a year and if an emergency arises
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and you need to do a second one it's a
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taxable distribution you don't want that
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to happen so try to avoid 60 day
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rollovers and try to do all of these
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money movements through a trustee to
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trustee transfer it goes from one
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trustee to the other trustee this is a
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non-taxable event as long as you move it
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from a 401k
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to an ira now if you move it from a 401k
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to a roth ira that would be a taxable
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event that's a different video we're not
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discussing that today so as a disclosure
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i'm going to be discussing
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a 401k that has all pre-tax
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contributions we're not going to get
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into the finer points of if you did some
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pre-tax she did some after-tax you did
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some roth because then you have to worry
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about what we call
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pro-rata rules and a pro-rata rule has
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to do with what percent of the account
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is after tax what percent of the account
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we're not going to go down that road so
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for our discussions today we're going to
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assume the entire account balance your
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contributions your employer's
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contributions are all
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pre-tax contributions pre-tax means when
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you put the money into the account you
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didn't pay the tax and you did that
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because you were hoping that one day
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you'd be in a lower tax bracket and if
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you haven't watched my videos on iras
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versus roth iras make sure you catch
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that video because we talk about how the
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future may not have lower tax brackets
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for anybody in this country and you may
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want to check that out so let's start
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off with the cons why you may not want
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to remove the money from your 401k well
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number one
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if you're under 59 and a half
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and you haven't left your place of
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employment you can't and if you do you
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could be penalized and if you take the
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money out of the 401k and you just throw
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it in your checking account that's fully
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taxable so that means if you had a
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hundred thousand dollars in your 401k
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and you just went in there and yanked
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the money out and dumped in your
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checking account that's ordinary income
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tax for you that year you've just added
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a hundred thousand dollars of money to
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your taxable income and that's going to
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probably throw you into a higher tax
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bracket that's a bad idea do not do that
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another reason you would not want to
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take your money out is loans are
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available inside your 401k so you're
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allowed to at your place of work
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borrow money out of your 401k and pay
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that money back that's allowed on a 401k
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if you take the money out of the 401k
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and you move it to an ira loans are no
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longer available make sure you
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understand that loans are gone when you
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take the money out of your qualified
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plan
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fees
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at your place of work the fees could be
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low you could have a very good employer
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who doesn't charge you a lot of money
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they could have good investments that
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have very low fees you need to know what
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your fees are and you want to see
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if the fees are higher or lower if you
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have really low cost money management it
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might make sense for you to leave the
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money there
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creditor and lawsuit protection one of
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the beautiful things about a 401k is you
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have unlimited
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creditor and lawsuit protection meaning
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if you get sued
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you do something wrong and you're sued
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or creditors come after you they cannot
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touch your 401k when you move it from
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your 401k to an ira now you default to
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your state and each and every state has
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different guidelines so make sure you
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check with your state guidelines make
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sure you check with your attorneys to
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understand if rolling the money out of
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your 401k or your ira is going to expose
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you to more risk from lawsuits and
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creditors so that covers the cons now
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let's talk about the pros why it might
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make sense for you to move the money out
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of your 401k investment options
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by having it inside your 401k you're
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limited to whatever your employer has
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chosen maybe it's five funds maybe it's
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10 funds maybe you don't have active
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money management you don't have
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professional money management it's a
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very narrow field when you take the
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money out of your 401k and you roll it
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over to an ira
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you have the entire universe of
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investments you can do a self-directed
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ira you can put in a brokerage account
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and have different investments managed
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there and i'm not telling you which one
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to do we're not going to get into
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investment advice none of my videos will
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go over investment advice i'm just
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saying that you have more investment
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choices when you move the money out of
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the 401k into an ira another pro fees so
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just like i said
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a a con could be that you have lower
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fees at your 401k it may be that your
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401k is overcharging you you may have
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excessively high fees at your 401k and
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by moving the money you may find
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somebody who charges less has much lower
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fees there are some great index funds
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out there some great etfs that have much
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lower fees than what you may be
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experiencing at your current company
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again i'm not going to make any
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recommendations on investments this is
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just talking about
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overall planning with your 401k
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guaranteed investments another pro you
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don't have guaranteed investments maybe
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inside your 401k you could maybe get a
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fixed annuity or some sort of a pension
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plan outside your 401k that may not be
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currently available in your 401k and it
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may behoove you to look at moving that
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money so you have more options for more
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guaranteed investments but the biggest
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pro of all and the whole reason why i'm
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making this video is because of roth
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conversions now if you've been watching
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my channel you understand i am very pro
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roth conversion and i think everybody
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should look into and have somebody run
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the numbers for you about roth
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conversions so having the money in an
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ira allows you to do roth conversions in
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a much easier way
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than it is inside of a 401k maybe your
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401k doesn't even offer a roth option
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maybe you don't want to go through the
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hassle of trying to do a roth
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conversions at your 401k so by moving
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the money into your own self-directed
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ira you can start roth conversions let's
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take a hypothetical example let's say
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you're a 60 year old and you have a 401k
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and let's say that you put money in that
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401k in this past march when the markets
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collapsed maybe you lost some of that
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money and the money's come back
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but now you're feeling a little
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uncertain about leaving the money in the
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401k and you've been hearing about roth
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conversions should i do a roth
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conversion so let's take that 60 year
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old say they have about 600 000 in a
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401k
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if we were to start doing conversions
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over the next number of years we
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wouldn't convert it all at once we'd
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want to do it slowly and steadily not
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trying to push you into a higher tax
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bracket hypothetically speaking you
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could save about a quarter of a million
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dollars of taxes
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simply by converting that 401k
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into a roth ira how would you do it you
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would first take the money out of the
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401k and place it into an ira so the
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money is over here in a 401k we're going
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to grab it we're going to move it over
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into an ira and then over the next
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number of years you would slowly and
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continually convert a little bit at a
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time
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try not to go too high in tax brackets
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and then the beautiful thing about the
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roth there's no rmds there's no required
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distributions and when you touch the
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money it comes out tax-free and the
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money you take out doesn't cause your
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social security to become taxable so you
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possibly could be in a situation where
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you don't have to pay any income taxes
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your social security would be tax-free
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the distributions from your roth ira are
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tax-free it is a great position to be in
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and it could possibly save you hundreds
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of thousands of dollars in taxes
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and the benefit of that is we're
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converting when taxes are low right now
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as you're sitting there watching this
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video we are in the lowest tax brackets
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we've seen in this country for almost
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100 years
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and in 2026 the taxes go back up see
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back in 2017 trump passed the tax cuts
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and jobs act and what this did was it
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temporarily lowered your income tax
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bracket everybody's bracket in the
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country lowered
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unfortunately the cut was so large they
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could only afford to lower it until 2026
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so in 2026 everybody's taxes are going
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up so if you're going to be retired
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after 2026 which is pretty much
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everybody i'm talking to unless you die
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before 2026 you're going to be in a
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higher tax bracket so why not take
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advantage of the lowest taxes we've seen
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in this country for a hundred years
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and take the money from the 401k to an
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ira and then consistently and steadily
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convert from the ira to a roth ira
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paying our taxes at the lowest rate so
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that we never have to pay taxes again
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that's the beauty of a roth a roth grows
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tax-free has no required distributions
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doesn't cause your social security to
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become taxable and when you take the
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money out you pay no income taxes
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whatsoever so there can be some huge
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benefits to taking money out of your
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401k whether you do it through
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in-service withdrawals at age 59 and a
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half or you've retired or left your
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place of employment and you have an old
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401k and you're looking for something to
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do with it
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this might behoove you again there are
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some cons there are some pros you need
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to sit down with a qualified tax advisor
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i always recommend sitting down with a
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certified financial planner to help them
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build a plan for you and show you why
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moving the money from the 401k to an ira
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may be in your best interest see erisa
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which stands for the employee retirement
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income security act which was
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established back in the 70s sort of
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holds
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court over your qualified plans the
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accounts you have at work and when you
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move them out of a qualified account you
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no longer fall under orisa so that could
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be a positive that could be a negative
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that's why it behooves you to sit down
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and talk with a qualified person heck
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reach out to us if you want to let us
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run the numbers for you and show you why
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it may or may not be in your best
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interest to move the money from a 401k
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you should always be asking these
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questions you should always be doing
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research don't just sit around and think
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this is the best choice for me
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do some research
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get some information and find out how
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you possibly could save a lot of money
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in taxes and create a much larger estate
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for your family as always if you like
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the video make sure you hit like if you
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want to see more videos like this make
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sure you hit the subscribe button and
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i'll see you next time
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