One of the best AT&T benefits for employees is a 401(k) account. It allows you to save, invest and grow money to supplement your AT&T pension. But, what happens when you retire or change jobs? What should you do with the money you’ve saved in your AT&T 401(k) account?
- An IRA allows you to select from a much larger pool of investments than the AT&T 401(k)
- Assets rolled over to an IRA are not subject to income taxes and can remain invested
- Advance Capital Management can manage 401(k) plans for AT&T workers
There are four things you can do with a former employer’s retirement account. You can:
(1) keep it;
(2) transfer it to your new employer's plan, if you change jobs and it’s allowed;
(3) withdraw the entire balance in cash;
(4) or carry out an IRA rollover, which is the transfer of funds from your 401(k) account into a traditional IRA or Roth IRA.
Keeping your 401(k) put can be convenient, but it can also restrict what you do with that money. While transferring it to a new employer’s plan keeps your retirement savings growing, a lot of businesses don’t allow it. Meanwhile, withdrawing the cash is almost always a bad idea, unless in an emergency when you really need it.
What option is right for you depends on your financial situation and future goals. But for many AT&T workers who are retiring or moving on to a new job, an AT&T 401(k) rollover into an IRA makes the most sense – and here’s why:
Greater flexibility and investment choices
While the AT&T 401(k) plan offers a variety of investments to choose from, an IRA allows you to select from a much larger pool of investments than any employer-sponsored retirement account. The AT&T 401(k) offers 10 investment options for managers and seven for non-managers. Often, workers accumulate too much AT&T stock in their accounts. With an IRA, you essentially have the freedom to invest in most publicly available investments.
More investment options give you more flexibility to create an investment portfolio that is better aligned with your financial situation, goals and risk tolerance. Also, you may be able to lower your fees and expenses with lower-cost investments.
Simplifying your investments
Today’s average worker stays at each job for 4.6 years, according to the Bureau of Labor Statistics. Therefore, you may have contributed to more than just the AT&T 401(k) plan over your career.
Instead of trying to manage several separate accounts, you can keep your retirement savings all in one place by consolidating them in a single IRA. It makes it easier to manage your assets under a cohesive investment strategy as well as monitor your progress.
Maintaining tax benefits
An IRA provides similar tax advantages that are typically offered in 401(k) plans or other retirement accounts. Earnings in a Traditional IRA are tax-deferred. With a Roth IRA, your earnings and withdrawals are tax-free; however, any pre-tax dollars you convert to a Roth are subject to ordinary income tax.
Avoiding tax penalties
If you withdraw money from your AT&T 401(k), it may be subject to income taxes and a 10% early withdrawal penalty if you’re under age 59 ½. The exception is if you separate from AT&T or retire in the year in which you turn age 55 or older. Then you can take withdrawals from your 401(k) without incurring the 10% early withdrawal penalty, even though you're under age 59 ½.
Funds directly transferred to a Traditional IRA, on the other hand, are not subject to income taxes or the early withdrawal penalty. Additionally, assets rolled over to an IRA can remain invested and can continue to grow.
Professional financial help
If you choose to have someone manage the assets from your AT&T 401(k) plan, an IRA can give you access to a wider range of professional services. Often, advisers don’t help manage 401(k) plans or will only provide suggestions, leaving you to implement those recommendations on your own.
Advance Capital Management, on the other hand, does manage 401(k) plans for AT&T workers. If you need assistance with your AT&T 401(k) plan, contact us for a free financial plan.
When your savings are in an IRA, a financial adviser can help you choose investments that appropriately fit your financial needs and goals. In any employer retirement account, what you see is what you get. Additionally, an adviser can directly adjust your portfolio as market conditions or your needs change.