Retirement plan decisions made easy
Lesson 7: Your Retirement
Life gets easier in retirement—for the most part. But you will still have some decisions to make and that is what this chapter is for. Some of the topics we’ll address include: retirement options (including what to do with company stock), what to do with company stock, and potential withdrawal distributions.
Your 401k choices in retirement are very much like your choices when you change jobs. You can leave your money in your 401k, withdraw the cash, or roll it over into an IRA. Withdrawing the cash is definitely not a good idea because you may not have enough to see you all the way through your retirement years, and you lose all the advantage of tax deferred growth. That said, the best option is either to leave it in the 401k or roll it over into an IRA.
If you have company stock and are trying to figure out the best way to liquidate it to fund your retirement, you can save yourself a lot of additional taxes. Rather than selling off your company stock within your 401k, you could set up a stock brokerage account and have the company stock transferred to that account before you sell it. There are some timing issues and other details to keep in mind before doing this, and it may or may not your best option. Setting up a stock brokerage account for your company stock can save you a bundle on taxes, but you need to follow the steps correctly. You also want to make sure it’s your best option; you may be just as well served by leaving it in your 401k. Check the complete chapter for all the details on this and other retirement choices so you can make the best decisions for your situation.
Drill Down: Company Stock in Your 401k
To decide how much to withdraw from your 401k annually, we’ll need to look at a couple of issues: what you’re required to withdraw and what you should withdraw. The IRS requires you to begin taking minimum distributions on April 1st of the year after you reach age 70½ or you retire, whichever comes later. Even though the IRS has nifty little tables to determine your minimum withdrawal, it’s not very helpful in figuring out how much you can afford to withdraw without depleting you retirement nest egg too quickly.
Drill Down: Minimum Required Distributions
My withdrawal recommendation is this: Plan on withdrawing only three percent of all your retirement savings. Once you start, bump up the amount you take out every year for inflation. But to really have an adequate cushion should you live a long time or have bad luck with your investments, you need some investments beyond your 401k.
Drill Down: How Much Should You Take out of Your 401k?
If you are in that wonderful position of having numerous assets to choose from when withdrawing, let me give you the basic order in which you’ll want to tap into them. First, use your most liquid assets that are not tax sheltered and have the lowest rate of return. Next, withdraw from those assets that have a higher rate of return but the gains are still taxable. And finally, after all those other assets are depleted, begin tapping into your retirement plans. That’s all there is to it, so enjoy your retirement!
Drill Down: 401k Withdrawals and Other Assets
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Lesson 1: What the Heck is a 401k, and What’s So Great About It?
Lesson 2: Contributions to Your 401k
Lesson 3: Investments “Cook Book” Approach
Lesson 4: Investments: How Investments Work
Lesson 5: Loans and Hardship Withdrawals from Your 401k
» Lesson 7: Your Retirement
Lesson 9: Your 401k, Your Other Assets, and Your Life
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