Choices for Your 401(k) at a Former Employer

One of the common threads of a mobile workforce is that many individuals who leave their job are faced with a decision about what to do with their 401(k) account.¹

Individuals have four choices with the 401(k) account they accrued at a previous employer.²

Choice 1: Leave It with Your Previous Employer

You may choose to do nothing and leave your account in your previous employer’s 401(k) plan. However, if your account balance is under a certain amount, be aware that your ex-employer may elect to distribute the funds to you.

There may be reasons to keep your 401(k) with your previous employer —such as investments that are low-cost or have limited availability outside of the plan. Other reasons are to maintain certain creditor protections that are unique to qualified retirement plans or to retain the ability to borrow from it if the plan allows for such loans to ex-employees.³

The primary downside is that individuals can become disconnected from the old account and pay less attention to the ongoing management of its investments.

Choice 2: Transfer to Your New Employer’s 401(k) Plan

Provided your current employer’s 401(k) accepts the transfer of assets from a pre-existing 401(k), you may want to consider moving these assets to your new plan.

The primary benefits to transferring are the convenience of consolidating your assets, retaining their strong creditor protections, and keeping them accessible via the plan’s loan feature.

If the new plan has a competitive investment menu, many individuals prefer to transfer their account and make a full break with their former employer.

Choice 3: Roll Over Assets to a Traditional Individual Retirement Account (IRA)

Another choice is to roll assets over into a new or existing traditional IRA. It’s possible that a traditional IRA may provide some investment choices that may not exist in your new 401(k) plan.⁴

The drawback to this approach may be less creditor protection and the loss of access to these funds via a 401(k) loan feature.

Remember, don’t feel rushed into making a decision. You have time to consider your choices and may want to seek professional guidance to answer any questions you may have.

Choice 4: Cash out the account

The last choice is to simply cash out of the account. However, if you choose to cash out, you may be required to pay ordinary income tax on the balance plus a 10% early withdrawal penalty if you are under age 59½. In addition, employers may hold onto 20% of your account balance to prepay the taxes you’ll owe.

Think carefully before deciding to cash out a retirement plan. Aside from the costs of the early withdrawal penalty, there’s an additional opportunity cost in taking money out of an account that could potentially grow on a tax-deferred basis. For example, taking $10,000 out of a 401(k) instead of rolling over into an account earning an average of 8% in tax-deferred earnings could leave you $100,000 short after 30 years.⁵

1. In most circumstances, you must begin taking required minimum distributions from your 401(k) or other defined contribution plan in the year you turn 73. Withdrawals from your 401(k) or other defined contribution plans are taxed as ordinary income, and if taken before age 59½, may be subject to a 10% federal income tax penalty.
   2. FINRA.org, 2024
   3. A 401(k) loan not paid is deemed a distribution, subject to income taxes and a 10% tax penalty if the account owner is under 59½. If the account owner switches jobs or gets laid off, any outstanding 401(k) loan balance becomes due by the time the person files his or her federal tax return.
   4. In most circumstances, once you reach age 73, you must begin taking required minimum distributions from a Traditional Individual Retirement Account (IRA). Withdrawals from Traditional IRAs are taxed as ordinary income and, if taken before age 59½, may be subject to a 10% federal income tax penalty. You may continue to contribute to a Traditional IRA past age 70½ as long as you meet the earned-income requirement.
   5. This is a hypothetical example used for illustrative purposes only. It is not representative of any specific investment or combination of investments.

The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. This material was developed and produced by FMG Suite to provide information on a topic that may be of interest. FMG Suite is not affiliated with the named broker-dealer, state- or SEC-registered investment advisory firm. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security. Copyright FMG Suite.

Choosing a Retirement Plan that Fits Your Business

If you have yet to develop a retirement plan for your business, or if you’re not sure the plan you’ve chosen is the right one, here are some things to consider.

How much can my business afford to contribute?

The cost of contributions may be managed by the plan type.

A simplified employee pension plan (SEP) is funded by employer contributions only. SEP contributions are made to separate IRAs for eligible employees.¹

Savings Incentive Match Plan for Employees of Small Employers (SIMPLE) IRAs blend employee and employer contributions. For example, some employers match employee contributions up to 100% of the first 3% of compensation. Others may contribute 2% of each eligible employee’s compensation. It’s up to the employer to decide the formula based on what works best for the business.²

A 401(k) is primarily funded by the employee; the employer can choose to make additional contributions, including matching contributions.³

What plan accommodates high employee turnover?

The cost of covering short-tenured employees may be managed by eligibility requirements and vesting.

With the SEP-IRA, only employees who are at least 21 years old, earn at least $750 in compensation, and have been employed in three of the last five years must be covered.⁴

The SIMPLE IRA must cover employees who have earned at least $5,000 in any prior two years and are reasonably expected to earn $5,000 in the current year.⁵

The 401(k) and defined benefit plan must cover all employees who are at least 21 years of age. These retirement plans are open for employees who have either worked 1,000 hours in the space of one full year or to those who have worked at least 500 hours per year for three consecutive years.^6,7

Vesting is immediate on all contributions to the SEP-IRA, SIMPLE IRA and 401(k) employee deferrals, while a vesting schedule may apply to 401(k) employer contributions and defined benefits.

Do I want to maximize contributions for myself (and my spouse)?

The SEP-IRA and 401(k) offer higher contribution maximums than the SIMPLE IRA. For those business owners who are starting late, a defined benefit plan may offer even higher levels of allowable contributions.

My priority is to keep administration easy and inexpensive.

The SEP-IRA and SIMPLE IRA are straightforward to establish and maintain. The 401(k) can be more onerous, but complicated testing may be eliminated by using a Safe Harbor 401(k). Generally, the defined benefit plan is the most complicated and expensive to establish and maintain of all plan choices.

1. Like a Traditional IRA, withdrawals from a SEP-IRA are taxed as ordinary income and, if taken before age 59½, may be subject to a 10% federal income tax penalty. In most circumstances, once you reach age 73, you must begin taking required minimum distributions.
   2. Like a Traditional IRA, withdrawals from a SIMPLE IRAs are taxed as ordinary income and, if taken before age 59½, may be subject to a 10% federal income tax penalty. In most circumstances, once you reach age 73, you must begin taking required minimum distributions.
   3. In most circumstances, you must begin taking required minimum distributions from your 401(k) or other defined contribution plan in the year you turn 73. Withdrawals from your 401(k) or other defined contribution plans are taxed as ordinary income, and if taken before age 59½, may be subject to a 10% federal income tax penalty.
   4. IRS.gov, 2024
   5. IRS.gov, 2024
   6. IRS.gov, 2024
   7. Congress.gov, 2024

How the Queen of Soul, the Lizard King, and Other Celebrities Determined Their Legacies   

Famous people are all too human. Tabloid newspapers and celebrity magazines and websites make bank chronicling their every moment, from going out for a coffee to attending glamorous premieres and glitzy concerts. And, yes, whenever they make a mistake, those same outlets bring it to your phones and tablets in real time. 

Sometimes these “oops” moments follow our celebrities long after they’ve taken their final bows, as their heirs and other interested parties battle over their estates. You might think that these stars, with their giant entourages, must have trusted financial professionals in their lives, assisting them in creating estate strategies–but in many cases, you would be wrong. Whether it’s because they have misconceptions about estate strategy or because they passed unexpectedly, these celebs have seen their legacies turn into games of tug-of-war. 

The Queen of Soul, Aretha Franklin, was one of the biggest recording artists in American history and a best-selling artist globally. From her early days singing gospel in her father’s Detroit church, Aretha found success with singles like “(You Make Me Feel Like) A Natural Woman,” “Chain of Fools,” and “Think.” With 112 singles on the Billboard charts, Franklin had #1 hits in the 1960s, 70s, 80s, 90s, and, finally, 2014. In the world of popular music, her legacy is assured. 

Less assured, though, were the many financial rewards Aretha reaped from her legendary career. After her death in 2018, multiple documents were found among her effects and papers, leading to a four-year legal dispute over the Queen of Soul’s estate. The trial proved emotional and dramatic for family members, with even voicemails from Aretha, a literal voice from beyond, used to determine the fate of not only her fortune but also her intellectual property (songs, recordings, and more). Ultimately, the court decided that four pages handwritten by Aretha and discovered in her couch represented her actual final will. ^1,2

While your estate strategy can change over time, it’s important to formalize your changes as soon as possible. Accidents will happen, but those handwritten pages might have done Aretha’s family more good in the hands of a professional than tucked away in a piece of furniture. It might have helped them avoid such a long legal process.

Most people in their twenties aren’t thinking much about their estates. Jim Morrison was too busy living the life of a rock star to give the matter his full attention. From 1965 to 1971, Morrison was the frontman for The Doors, the psychedelically inspired rock band who made hits with “Hello, I Love You,” “Light My Fire,” and “Love Her Madly.” Together, they went from the opening act at Los Angeles’s Whisky a Go Go nightclub to touring the world in support of their six albums. After recording L.A. Woman in 1971, Morrison (known as “The Lizard King” to fans) decided to take some time off and live in Paris with girlfriend Pamela Courson. A few months later, Morrison died of reported heart failure at age 27.

Despite his reputation for the fast life and excess, which undoubtedly contributed to his tragic early death, Morrison did leave a two-page will naming Pamela Courson as his primary heir. While his assets were relatively modest at the time of his death, between his quarter ownership of the Doors and the renewed interest in the band fostered by his passing, his estate blossomed into a financial juggernaut. Unfortunately, Courson passed three years after him, with no will of her own. This led to a dispute over Morrison’s legacy, with both his own parents and Courson’s heirs challenging the competence of his will. Ultimately, they elected to divide Morrison’s estate evenly, out of court.³

The case of Morrison’s will highlights two important factors: 1) Everyone needs a competent estate strategy, even those who may feel they are too young to worry about such things. 2) A clearly written and well-thought-out will may be able to lock down your final intentions. In Morrison’s case, he specifically excluded his estranged parents from his will without naming them, instead listing his brother and sister as alternate heirs after Courson. There were certainly other (or better) ways to favor his siblings over his parents, as well as avoid the courtroom drama after Courson’s passing.

While these are two famous examples, there are many other famous celebrity estates to consider, including the following:

• Frank Sinatra made sure his $100 million estate had no issues; he stipulated a provision disinheriting any individual who contested his will. Ultimately, they did it his way.³
• Comic and actor Robin Williams left his estate to his children and a house to his wife, with the provision that the house went to his children after her death. Unfortunately, he said nothing about his personal effects, including valuable movie memorabilia, that existed inside the house, which led to a dispute between the parties that was settled out of court in 2015.³
• Model and reality star Anna Nicole Smith, who famously married businessman J. Howard Marshall, was not mentioned in her elderly husband’s will when he died 14 months into their marriage. The existing will, predating the wedding, named Marshall’s son as his primary heir. This led to a very public legal dispute that continued for 20 years. By the time the court made its second and most recent ruling (the ruling can still be reopened), both Anna Nicole and Marshall’s son were deceased.³
• Prince, who once went to great lengths to force his record label and the media to refer to him by an unpronounceable symbol, never took the time to write a will, informally or otherwise. It took six years for Minnesota courts to determine the heirs of his $156 million, splitting it into two LLCs, each controlled by three of Prince’s six half-siblings.⁴

These stories may be fascinating and tragic but they all underline the importance of a clear and comprehensive estate strategy. Even those of us mere mortals who don’t have to deal with record executives, film producers, and the paparazzi have the potential to make mistakes that can be costly and troubling to our families and loved ones.

1. NY Times, July 11, 2023
   2. Detroit Free Press, April 21, 2023
   3. Cake, August 25, 2020
   4. CNN, August 3, 2022

The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. This material was developed and produced by FMG Suite to provide information on a topic that may be of interest. FMG, LLC, is not affiliated with the named broker-dealer, state- or SEC-registered investment advisory firm. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security. Copyright FMG Suite.

Financially Savvy at Six Figures

Reaching six figures is no easy feat. If you’re one of the hard-working few who have made it to this milestone, give yourself a pat on the back and celebrate. It can be tempting to feel like now that you’ve made it to the top of this mountain your financial worries are over. But before you go reaching for a bottle of champagne or calling a Ferrari dealer, consider this: the majority of Americans living paycheck to paycheck are from higher income households. In fact, out of 9 million Americans surveyed, 8 million of those are in higher income brackets.¹

Now it’s more important than ever to take an active role in managing your money. Don’t equate earning six-figures with the ability to spend six-figures. Fortunately, there are several strategies that may help:

Steps to Take

There is no one-size-fits-all strategy for maximizing your new six-figure income. Every person is different, and some suggestions may mean more to you than others. But there are tried-and-true methods that can help point you in the right direction when it comes to your financial health.

Review Your Budget

Now that you are making six figures, you may be tempted to never look at your budget again. Resist this temptation and go back over your budget to make sure your spending is based on your overall approach. Feel free to adjust your line items to match any new priorities without going overboard. Careful preparation may help you know how much you can consider spending on that splurge item that you found online. Your renewed budget should be designed to follow your other new goals, knowing that your day-to-day matters are on firm footing.²

Target Unproductive Debt

Not all debt is bad, as much of it helps you both financially and in terms of your quality of life. But certain types of debt, like credit cards and personal loans, may be something you want to manage better. Set a goal for your unproductive debt, which may put you in a better overall financial position. Each penny you save can go toward other goals, such as vacations, travel or even retirement.

Build Your Emergency Fund

Life is full of the unexpected. Prepare by setting aside enough liquid money to cover three to six months of expenses. This reserve may help you manage through a job loss or an injury or illness that requires time to heal.

Don’t Forget About Taxes

Now that you’ve entered a new income bracket, your tax obligations may have changed. Take time to review your tax situation in an effort to avoid year-end surprises. This article is for informational purposes only and is not a replacement for real-life advice, so be sure to consult a tax, accounting, or human resource professional before modifying your tax-withholding strategy.

Don’t Forget Your Retirement Plans

If you haven’t started planning for retirement, your new income level may allow you to start setting aside money using a company-sponsored retirement plan. Initially, a financial professional may be able to provide guidance concerning the role a retirement plan can play in your overall financial strategy.

Move Forward Confidently

Restructuring your budget, managing debt, creating an emergency fund, and beginning to consider retirement may help ensure a more comfortable financial future. Even at a six-figure income, proactive preparations can help position you such that your money will eventually work for you.

1. Pymnts.com, January 2023
   2. Forbes.com, March 29, 2022

Retiring Earlier Than Expected? What To Know

Many Americans, through circumstances beyond their control, find themselves needing to retire earlier than anticipated. Whatever the circumstances, it’s difficult not to feel wrongfooted and hurried by the situation. However, it’s important to get yourself back on track as soon as possible. Here are some things to consider as you make the transition:

Don’t Make Fast Decisions

When dealing with a sudden transition like this, it can be tempting to make some sort of hasty decision. But reacting too quickly might hinder your ability to reorient yourself. Unless something is truly urgent, it’s often best to give yourself some space to think about your new life and carefully consider all your available choices. Take the time to organize your thoughts and to put your important documents in order. At the end of that period, you can look at things in a cool, calm way.

Work, if Possible

The American Association of Retired Persons (AARP) states that 56 percent of workers aged 50 and over have faced some sort of unplanned departure from work for various reasons, ranging from health issues or caring for an infirm relative to redundancy . Finding yourself out of work in your 60s can be discouraging, but it’s also true that age is not the barrier it once was. In fact, it’s not unusual for companies to seek an experienced hand to be a consultant or to train the next generation working in a particular field. While it may be part time or even temporary, if you are able to work, you may find great satisfaction in that opportunity, not to mention additional income.

What to Consider with Tax-Deferred Accounts

Your retirement strategy likely includes some form of tax-deferred account. If so, making withdrawals is one choice to consider. For example, if you are not working, you may be in a lower tax bracket than before. But keep in mind that penalties might apply, depending on your age.

This article is for informational purposes only and is not a replacement for real-life advice. Make sure to consult with your financial and accounting professionals before accessing any tax-deferred account.

Is Social Security a Factor?

The longer you delay taking your Social Security payments, the greater they will be. While Americans have an opportunity to start taking payments as early as age 62, the payments will not reflect the amount you could be getting at full retirement age. Starting at 62 may be a consideration for those who need the income or have some other urgent need, such as being in poor health.

Making an unexpected change can bring changes to your overall retirement strategy. However, it’s important to remember that it’s likely your financial professional has worked with other people in similar circumstances. This might be one of those times when it’s good to have someone who can help provide some guidance.

The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. This material was developed and produced by FMG Suite to provide information on a topic that may be of interest. FMG, LLC, is not affiliated with the named broker-dealer, state- or SEC-registered investment advisory firm. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security. Copyright FMG Suite.

Deciding When to Take Social Security

One of the most common questions people ask about Social Security is when they should start taking benefits. Making the right decision for you can have a meaningful impact on your financial income in retirement.

Before considering how personal circumstances and objectives may play into your decision, it may be helpful to preface that discussion with an illustration of how benefits may differ based upon the age at which you commence taking Social Security.

As the accompanying chart reflects, the amount you receive will be based upon the age at which you begin taking benefits.

Monthly Benefit Amounts Based on the Age that Benefits Begin¹

*This example assumes a benefit amount of $1,500 at the full retirement age of 67 months for those born after 1960.

At first blush, the decision may seem a bit clear-cut: Simply calculate the lifetime value of the early benefit amount versus the lifetime value of the higher benefit, based on some assumed life expectancy.

The calculus is a bit more complicated than that because of the more favorable tax treatment of Social Security income versus IRA withdrawals, spousal benefit coordination opportunities, the consideration of the surviving spouse, and Social Security’s lifetime income guarantee that exists under current law.²

Here are three ideas to think about when making your decision:

1. Do You Need the Money?
   Retiring before full retirement age may be a personal choice or one that is thrust upon you because of circumstances, such as declining health or job loss. If you need the income that Social Security is scheduled to provide, however reduced, then taking benefits early may be the only choice for you.
2. Consider the Needs of Your Spouse
   If your spouse expects to depend on your Social Security income, the survivor benefits he or she receives after your death may be reduced substantially if you begin taking benefits early. It’s important to remember that, based on current life expectancy tables, women are likely to live longer than men.
3. Are You Healthy?
   The primary risk in retirement is running out of money. The odds of living a long life in retirement calls for waiting until you reach full retirement age, so that you receive a full benefit for as long as you live. However, if your current health is poor, then starting earlier may make sense for you.

There are several elements you should evaluate before you start claiming Social Security. By determining your priorities and other income opportunities, you may be able to better decide at what age benefits make the most sense.

1. SSA.gov, 2023
   2. Once you reach age 73 you must begin taking required minimum distributions from a Traditional Individual Retirement Account in most circumstances. Withdrawals from Traditional IRAs are taxed as ordinary income and, if taken before age 59½, may be subject to a 10% federal income tax penalty. Contributions to a Traditional IRA may be fully or partially deductible, depending on your adjusted gross income.

The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. This material was developed and produced by FMG Suite to provide information on a topic that may be of interest. FMG, LLC, is not affiliated with the named broker-dealer, state- or SEC-registered investment advisory firm. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security. Copyright FMG Suite.

Countdown to College

As a parent, you of course want to give your child the best opportunity for success, and for many, attending the “right” university or college is that opportunity. Unfortunately, being accepted to the college of one’s choice may not be as easy as it once was. Additionally, the earlier you consider how you expect to pay for college costs, the better. Today, the average college graduate owes $28,950 in debt, while the average salary for a recent graduate is $55,360.^1,2

Preparing for college means setting goals, staying focused, and tackling a few key milestones along the way—starting in the first year of high school.

Freshman Year
Before the school year begins, you and your child should have at least a handful of colleges picked out. A lot can change during high school, so remaining flexible but focused on your shared goals is crucial. It may be helpful to meet with your child’s guidance counselor or homeroom teacher for any advice they may have. You may want to encourage your child to choose challenging classes as they navigate high school. Many universities look for students who push themselves when it comes to learning. However, a balance between difficult coursework and excellent grades is important. Keeping an eye on grades should be a priority for you and your child as well.

Sophomore Year
During their sophomore year, some students may have the opportunity to take a practice SAT. Even though they won’t be required to take the actual SAT for roughly a year, a practice exam is a good way to get a feel for what the test entails.

Sophomore year is also a good time to explore extracurricular activities. Colleges are looking for the well-rounded student, so encouraging your child to explore their passions now may help their application later. Summer may also be a good time for sophomores to get a part-time job, secure an internship, or travel abroad to help bolster their experiences.

Junior Year
Your child’s junior year is all about standardized testing. Every October, third-year high-school students are able to take the Preliminary SAT (PSAT), also known as the National Merit Scholarship Qualifying Test (NMSQT). Even if they won’t need to take the SAT for college, taking the PSAT/NMSQT is required for many scholarships, such as the National Merit Scholarship.³

Top colleges look for applicants who are future leaders. Encourage your child to take a leadership role in an extracurricular activity. This doesn’t mean they have to be a drum major or captain of the football team. Leading may involve helping an organization with fundraising, marketing, or community outreach.

In the spring of their junior year, your child will want to take the SAT or ACT. An early test date may allow time for repeating tests during their senior year, if necessary. No matter how many times your child takes the test, most colleges will only look at the best score.

Senior Year
For many students, senior year is the most exciting time of high school. Seniors will finally begin to reap the benefits of their efforts during the last three years. Once you and your child have firmly decided on which schools to apply to, make sure you keep on top of deadlines. Applying early can increase your student’s chance of acceptance.

Now is also the time to apply for scholarships. Consulting your child’s guidance counselor can help you continue to identify scholarships within reach. Billions in free federal grant money go unclaimed each year, simply because students fail to fill out the free application. Make sure your child has submitted their FAFSA (Free Application for Federal Student Aid) to avoid missing out on any financial assistance available.⁴

Finally, talk to your child about living away from home. Help make sure they know how to manage money wisely and pay bills on time. You may also want to talk to them about the social pressures some college freshmen face for the first time when they move away from home.

For many people, college sets the stage for life. Making sure your children have options when it comes to choosing a university can help shape their future. Work with them today to make goals and develop habits that will help ensure their success.

1. Forbes.com, February 22, 2023
   2. TheBalance.com, June 28, 2022
   3. PrincetonReview.com, 2023
   4. Forbes.com, February 5, 2023

The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. This material was developed and produced by FMG Suite to provide information on a topic that may be of interest. FMG Suite is not affiliated with the named broker-dealer, state- or SEC-registered investment advisory firm. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security. Copyright FMG Suite.

Timing Your Retirement