If you have been planning and investing for retirement, you may have found that is was easier to know how and when to invest your capital than it is to know how and when to withdrawal it. If you are approaching retirement age you may be asking yourself at age 65 what should I do with my 401k?
Fortunately, at 65 years of age you have the best of both worlds available to you. On the one hand you are old enough to be eligible for penalty free withdrawals of your funds. On the other hand, you are also young enough to not have to take the minimum distributions required after you reach the age of 70½.
By not being required to take minimum distributions, you have the option to continue growing your 401k where it is, or rolling it over into a traditional or Roth IRA. Online brokerages such as ETrade and Zecco make it easy and affordable to roll your 401k over into a new retirement account.
At Age 65 What Should I Do With My 401k To Avoid Penalties?
If you are retiring and would like to begin taking distributions from your 401k account, your withdrawals on contributions and gains will be taxed as ordinary income. Provided you are no longer employed, you are permitted to cash out your 401k or begin receiving distribution payments.
You may also choose to leave your funds in your former employer’s 401k plan until you are required to take distributions at 70½ years old. Another popular option for people who are wondering, “at 65 what should I do with my 401k?” is to rollover their 401k plans to an IRA if they do not expect to need the funds for at least five more years.
If your current plan offers limited or substandard choices for investments you may want to opt for the rollover, in spite of the ease and attractiveness of leaving your money in your old 401k plan. By rolling over your 401k account into an IRA set up online at a top brokerage such as ETrade, you can invest your funds in a broad variety of securities and asset classes.
Benefits Of A 401k To IRA Rollover
At 65 what should I do with my 401k? By rolling your 401k account over to a traditional or Roth IRA you are giving yourself the opportunity to continue growing your funds tax-deferred, with more control over how and when you invest, as well as more freedom as to when you receive distributions.
Consolidating multiple plans from multiple other employers also can help your accounts become easier to manage, and may also help you qualify for sales charge discounts or break points in mutual funds. In the event that you pass away, your beneficiaries can spread distributions out over several years.
Unlike funds held in a 401k, IRA funds are not protected from bankruptcy or creditors. It is also important to keep in mind that all rollovers should be done directly in order to avoid costly fees and penalties that could result from mistakes and missed deadlines.
The IRS requires your employer to withhold 20% for income taxes on all funds withdrawn from your 401k account that are not deposited into another qualified retirement plan within the outlined 60 day time frame.
The key to maximizing your retirement savings is to develop a plan for continued capital growth, as well as your plan for receiving distributions and stick to it. Consult with a financial professional, such as the retirement specialists at ETrade to assist you in developing a plan that is right for you.