Retirement Account Options for Nurses changing Jobs
If you are a Registered Nurse working in the United States you are most likely concerned about saving for retirement.
With all the retirement savings programs available it can be very confusing, especially if your retirement plan is sponsored by your employer.
What happens if you leave this job for another?
As an employee you would likely have four different options, which can be utilized separately or in combination, regarding your account balance:
Leave your money with your former employer, so it remains in that plan, if allowed;
Directly transfer the funds in your account to your new employer’s plan, if they have one and direct transfers are allowed;
Directly transfer the funds to an Individual Retirement Account (IRA); Take physical possession of your funds and within 60 days rollover into an IRA. With this option your employer is required to withhold 20% and you are required to deposit 100% of your account balance if you wish to avoid paying any taxes or possible penalties
Simply cash out of your existing plan at the current account value. However, this is the most costly option. Not only will it deplete your retirement savings it will also cost you taxes and possible penalties. – under heading of Withdrawals, change first sentence to: If a nurse leaves his/her place of employment when they are over the age of 55, he/she may take a distribution without penalty, only paying the ordinary income tax obligation.
A report released by the Employee Benefits Research Institute (EBRI) in 2013 on assets deposited into IRAs in 2011 show that the funds rolled over from retirement plans sponsored by employers totaled nearly 13 times the amount of money deposited via direct contributions.
This trend is nothing new as data gathered by the Investment Company Institute (ICI) suggests that from 1996 to 2008 over 90% of assets deposited into IRAs were from rollovers, mostly from retirement plans.
In a 2013 research report, “The Role of IRAs in U.S. Households’ Saving for Retirement” done by ICI Research Perspective, 49% of the IRAs belonging to households in the U.S. had rollover funds in them.
For CreativeNurse to make a recommendation for a Registered Nurse to roll over his/her assets (being held in the retirement plan of a former employer) to an IRA, rather than keeping those assets where they are, several factors must be considered, including the nurse’s individual circumstances and needs.
What CreativeNurse recommends you take under consideration:
Comparison of Fees & Expenses
Both employer-sponsored retirement plans and IRAs charge investment-related expenses as well as fees associated with the plan or account. Investment-related expenses usually include commissions, sales loads, investment advisory fees, and any expenses related to mutual funds that are invested in.
Plan fees: usually include administrative fees such as trustee fees, compliance and recordkeeping as well as fees associated with accessing a customer service representative.
In some instances the employer pays for some if not all of the plan’s admin expenses. IRA account fees: usually include account setup fees, custodial fees and admin expenses.
Range of Investments
When you invest in an IRA you will more likely have a broader range of investments that you can participate in.
How important this is would depend on how interested you are in investing in the options offered under the IRA plan you’re considering.
For example, if you are satisfied with the array of institutional funds available at a low cost under the plan you’re already in, you may not see the broader range of investment options offered with an IRA as important to you.
You will want to consider the scope of services offered under each of the options.
Some retirement plans: offer investment advice, telephone help lines, tools to help you plan, various workshops and educational materials.
IRA providers: offer various levels of service from full brokerage services, help in distribution planning, investment advice and access online to securities execution.
Your retirement plan may provide a pre-retirement death benefit, which would be paid out in addition to your account balance if you purchase life insurance through your plan.
By contrast, IRAs cannot offer you life insurance protection.
If a nurse leaves his/her place of employment when they are in the age range of 55 to 59 ½, he/she may be allowed to make penalty free withdrawals if their plan falls under the ordinary income tax obligation.
However, penalty free withdrawals usually are not allowed to be taken from an IRA account until the investor turns 59 ½ years of age.
It may also be easier to borrow money from a retirement plan, if that is allowed.
However, borrowing money is not an option with an IRA account.
Required Minimum Distributions
Once an investor turns 70 ½ years of age, the rules for retirement plans as well as IRAs require that certain minimum amounts of money be withdrawn periodically.
These is referred to as the “required minimum distribution.”
If you are still employed at the age of 70 ½ you may not have to take the required minimum distributions from your current employer’s plan.
But this depends on whether the plan allows you to opt out. In any case this choice does not apply to over 5% of investors.
For nurses who plan on working into their 70s, this may be something you want to look into.
If the 403(b) separately accounts for amounts accrued before 1987, the RMD for these amounts need not begin until the employee reaches age 75.
Financial Protection from Legal Judgments & Creditors
Retirement plan assets covered under ERISA typically received unlimited legal protection under federal law from creditors, while assets held in an IRA and some 403(b) plans can only be protected if you file for bankruptcy.
The laws vary state-to-state regarding IRA assets and 403(b) and whether they can be protected from lawsuits.
Appreciated Employer Stock
If your retirement plan includes stock in your employer that has appreciated significantly you would be well advised to determine the negative tax effects of rolling that stock into an IRA.
When you transfer in-kind employer stock into an IRA, the appreciation on the stock will be taxed at the rate of ordinary income when it is distributed.
CreativeNurse recommends that you weigh the tax advantages of continuing to hold your employer stock in a non-qualified account with the possibility that you may be excessively invested in employer stock.
It may be too risky for you to own too much of your employer’s stock in your retirement account.
It might be in your best interests to liquidate those holdings and rollover the value into an IRA account.
This would mean that you would lose the advantage of having the stock’s appreciation treated as long-term capital gains.
When looking at all the options available you must consider all these factors, however this is not a complete list of all the things you may want to consider.
Depending on your particular situation, there may very well be other considerations.
Be Aware of Possible Conflicts of Interest
Financial advisors and representatives that recommend you rollover the assets in your retirement plan to an IRA may be making commissions and/or other fees when you do this.
On the other hand, when a financial advisor tells you it is in your best interests to leave your assets with your old employer or roll your assets over to a different employer-sponsored plan, they will likely not be receiving any compensation for giving you this advice.
You must be aware of any conflict of interest facing the financial advisor or representative in making their recommendations to you.
Conflicts of interests may be in play for financial advisors and representatives who are in a position to educate plan participants on all the options and/or choices available to them.
You must insist that any financial incentives on the part of the financial advisor be disclosed in writing.
Financial representatives and advisors should go over their retirement services activities to determine if they have any conflicts of interests.
They are obligated to ensure that when assisting and advising plan participants they have no conflicts of interests that could possibly influence their judgment.
They are obligated to act in the customers’ best interests at all times.
They are not allowed to confuse investors nor interfere with any efforts made by the investor to educate themselves.
Written By Independent third Party.
2016-20304 (exp. 4/18)
All Investments are subject to market risk and may lose value.
Material discussed is meant for general informational purposes only and is not to be construed as tax, legal, or investment advice. Although the information has been gathered from sources believed to be reliable, please note that individual situations can vary. Therefore, the information should be relied upon only when coordinated with individual professional advice.
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