Category: 401(k)

SoccerBall-351x185I’ve really come to enjoy if/then statements. My family uses them all the time.

Son #2:  “If I make this shot, then I get to stay up later.”
Son #4:  “If I eat 20 goldfish, then you have to play soccer with me.”
Son #3:  “If you can’t guess what number I’m thinking of, then I get to keep your guitar.”
Son #1:  “If I get a full scholarship, then you have to buy me a new car.”
Wife #1:  “If you don’t put up your clothes, then I’m going to take your…” (Well, you get the point.)

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october-cover[1]Growing in popularity within employer sponsored 401(k) retirement plans are the target-date funds. Simply explained:  You pick the date you plan on retiring, then select the target date fund closest to that year, and voila, you’ve just implemented an investment strategy. Based on that date, your 401(k) will be allocated with a corresponding mixture of stocks, bonds and cash equivalents. The further out your retirement date, typically, the larger allocation of stocks you’ll have. And over time, as you get closer to that “target date”, your stock allocation will decrease and your bond allocation will increase. Even more simply put:  The target-date fund puts your 401(k) on autopilot – becoming more conservative as you get older.

Easy? Yes.

Right for you? Depends.

What you gain in ease of use you may lose in personalization. When you choose a target date fund, you’re choosing a bundled allocation of mutual funds. If you’d prefer to select your own funds from the menu afforded in your plan, then the target date funds may not be for you. And please note, just because you’ve chosen the “Target-Date 2045” fund, for example, doesn’t mean you’re going to have enough money in your account to retire in 2045. It simply means your allocation between stocks/bonds/cash is based on that selected date for retirement.

For our purposes, we’re talking about target-date funds within your company’s retirement plan. If you’re comparing target date funds outside the company sponsored plan, there are a host of other considerations. Between different target-date fund companies, you will find different expense ratios, and different strategies as well. For example, some may attempt to manage your retirement allocation “to” retirement, while some will attempt to manage your allocation “through” retirement. Big difference. Some of us may desire (or need, most likely) continued growth opportunities during retirement. The checks may stop during retirement but the bills likely won’t, right?  Some may be actively managed while others may utilize a passive management strategy. You may also find that Company A’s Target-Date 2045 fund has a significantly higher stock allocation during the retirement years than Company B’s.  And that’s an important side note, by the way. If you don’t need to take the risk of Company B’s fund to accomplish your goals and objectives, then why would you?  Just know that there could be important differences between same-date funds. (The matter of risk is a blog post all its own – and soon to come I might add.)

Bottom Line:  If you prefer the hand’s off approach, then a target-date fund might be for you. If you enjoy rolling up your sleeves and doing your own research, then they may not.  They do have a place in many investors’ retirement strategies and that percentage is growing. If it’s an option within your plan, you might want to check it out.  If it’s not offered through your plan, you may still want to check them out. Diversification within retirement resources can be a great thing…and that’s yet another post to come.

change_sign[1]For many, the New Year ushers in change – change of habit, a change of thought, and quite possibly, a change of career. If a career change is in your future, you should ask, “What about my 401(k)? ” Great question. And centsyouasked, the following should help:


Do nothing: Keep your savings in your previous employer’s retirement plan (if allowed.)


1) Money continues to grow tax-deferred.
2) You avoid the 10% early withdrawal penalty if under age 59.5.
3) Little or no paperwork.
4) Your plan may allow you to take loans.
5) Your investment strategy remains intact.
6) You may be allowed to withdraw money without penalty.

Why not?

1) The plan may place limitations on inactive accounts.
2) Investment options will be limited to those offered in the plan.
3) Withdrawals and distributions are subject to the plan’s provisions.
4) The company may be acquired and/or change the plan in the future.

(Your HR representative or Plan Administrator should be able to clarify the above.)

Roll your savings to an IRA


1) Money continues to grow tax-deferred
2) You avoid the 10% early withdrawal penalty if under age 59.5
3) You may have access to additional investment opportunities.
4) You control how to access your savings.
5) Flexibility to move your IRA rollover assets into a future employer’s plan.
6) Potential to convert your assets to a Roth IRA in the future.

Why not?

1) Required minimum distributions must begin at age 70.5.
2) No loans against your account are permitted.
3) The fees could be higher than if left in the plan.

(If this is the option for you, notify your employer that you’ll be initiating a rollover and obtain the proper distribution forms. Choose an IRA provider and complete an account application. CapSouth can help. Call the following number: (800) 929-1001.)

Rollover to your new plan: Move your savings into your new employer’s retirement plan.


1) Money continues to grow tax-deferred.
2) You avoid the 10% early withdrawal penalty if under age 59.5.
4) Your new plan may allow for loans.
5) Your retirement assets are consolidated with one provider.

Why not?

1) There may be a waiting period before you can transfer your balances into the new plan.
2) The new plan may have higher fees than the old plan.
3) Investment options are limited to those offered in the new plan.
4) Withdrawals and distributions are subject the plan’s provisions.
5) Investment options and features offered by your previous plan may be more favorable than your new employer’s plan.

(If this is the option for you, you’ll need to check with your new employer to confirm their plan accepts rollovers. If so, they will provide the necessary paperwork to initiate the rollover.)

Take your savings in cash


1) Immediate access to a portion of your money.

Why not?

1) Your savings will no longer grow tax-deferred.
2) Without compounded growth, you short-change your potential for wealth in retirement.
3) You may have a 10% early withdrawal penalty that generally applies to people under age 59.5.
4) Your distribution will be subject to all applicable federal, state and local taxes.

(If you believe this is the option for you, please speak with a qualified tax advisor regarding your potential tax liability. Do this BEFORE requesting the cash distribution and understand how this will affect your retirement savings.)

Please consider your options carefully before making any decision with respect to your retirement savings. To ensure that you successfully negotiate all the details, especially the tax ramifications of each option, you should consult with your tax advisor. Your retirement plan savings will most likely make up the largest single asset you ever have. Change is great. Informed change from the application of wise counsel is best.

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