Wealth Management White Paper Series. Dealing with your old 401k plan

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1 White Paper Series Dealing with your old 401k plan June 2012

2 You re moving on to bigger and better things. Maybe your 401k plan should, too. There s a pretty good chance your grandparents worked for the same company their entire lives. Perhaps the same can be said for your parents, too. But these days, life-long employment with one company is the exception, not the rule. When the time comes to change jobs and it certainly will what do you do with your old 401k? Taking a few minutes today to think about your old 401k could save you thousands dollars in the years to come. In this guide, we ll take a look at your options. We ll also provide tips that can help you make the most appropriate decisions.

3 Part 1 Consider your options. In good financial times, people generally leave jobs to move on to better opportunities. In not-so-good times, they often leave jobs because of downsizing and restructuring. Regardless of the ups and downs of the financial cycle, you re most likely bound to wind up with an old 401k or two. Fortunately, you ve got choices. Here s a look at the options. Cash Out You have the right to cash out your old 401k. And yes, a big fat check can sound pretty tempting. But if at all possible, don t go this route. Your money will be subjected to a huge tax hit and, if you re under 59½, an additional 10% penalty. It s just not worth it, for most people. Rollover to a new 401k Assuming you re starting a new job, your new employer will probably offer some sort of 401k plan similar to what you had in the past. If you can get matching funds for contributions in the new 401k plan, strongly consider taking this option. It s not usually a good idea to walk away from free money. If your new employer doesn t offer matching funds, you might be better off starting a Roth IRA. Start a Roth IRA Like a 401k, a Roth IRA is a retirement savings vehicle. But there are some key differences. Whereas 401ks are funded by pre-tax dollars, Roth IRAs are funded with post-tax dollars. Many financial advisors recommend Roth IRAs because they offer increased control over your account and because you won t have to pay additional taxes on your money when it s time to withdraw it. For more information on Roth IRAs, see our IRA white paper. Do Nothing Sometimes, doing nothing is a reasonable plan. If you like your old 401k, its options, and the way the account is managed, then you could consider leaving it where it is. Just don t forget about it as time goes by.

4 Part 2 What s right for you? So we ve taken a look at your options and how they work. But how do you know which is the right choice for you? That all depends on your situation. It s a matter of weighing the pros and cons. Overview Pros Cons Recommended Cash out Close your old 401k account and walk away with a check. Instant cash that you re free to use as you choose. Substantial tax hits and penalties. Only if you re in dire financial need. Rollover Transfer your funds into a new 401k account offered through your new employer. Potential to take advantage of matching funds from your new employer. Easy to monitor. Limited choices. Generally speaking, funds have to remain in that account until you leave your job. If your new employer offers a great plan that provides plenty of choices and matching funds. Start a Roth IRA Work with a financial advisor to open your own Roth IRA. Greater control and more options than 401k plans. No additional taxes on withdrawals (if you re over 59½). You ll likely have to pay some taxes. No matching funds from your employer. If you want more control over your funds and you can afford to pay some taxes. Do nothing Leave your old 401k unchanged. Easy. Limited control over your funds. No matching funds from your employer. If your new employer doesn t offer a 401k plan and you don t want to bother with managing a Roth IRA. The information contained in this report does not purport to be a complete description of the developments referred to in this material. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Any opinions are those of MainSource Bank and not necessarily those of RJFS or Raymond James. You should discuss any tax or legal matters with the appropriate professional. Unless certain criteria are met, Roth IRA owners must be 59½ or older and have held the IRA for five years before tax-free withdrawals are permitted.

5 Part 3 Moving forward. Whenever you re about to make a big financial decision, it helps to talk to a pro. If you d like a little advice from someone you can trust, talk to a financial planner at MainSource Bank or any other reputable financial institution. And most importantly, good luck with that new job!