Roll Over Your IRA for A More Secure Future
Below is a MRR and PLR article in category Finance -> subcategory Personal Finance.
Roll Over Your IRA for a More Secure Future
Summary
401(k)s and employer-sponsored retirement plans have made investing accessible for many Americans. With fewer people likely to have substantial pensions, relying on personal savings is becoming crucial for future retirees.Article
The rise of 401(k)s and employer-sponsored retirement plans has transformed many Americans into active investors. This shift is encouraging as fewer future retirees will have sizable pensions, making personal savings a key part of retirement planning.
However, job changes add complexity to maintaining retirement accounts. Statistics show that the average American will switch jobs at least 10 times in their lifetime, often leading to the temptation of "cashing out" retirement savings. According to a 2003 survey by Hewitt Associates, 42% of people opt to cash out their retirement savings when changing jobs. This number climbs for younger individuals and those with lower balances?"50% of people aged 20 to 29, and 72% for account balances between $5,000 and $10,000.
A smarter strategy is to roll over your retirement fund when changing jobs. By transferring your savings to a Rollover IRA, you can avoid taxes now and allow your money to grow tax-deferred. This approach also helps you dodge early-withdrawal penalties if you wait until after age 59½ to access the funds.
Among the various firms offering Rollover IRAs, T. Rowe Price provides a straightforward and adaptable solution. Their free interactive CD-ROM, "The T. Rowe Price Rollover Planner," guides investors in managing their 401(k)s when changing jobs or retiring.
The "Rollover Planner" includes a distribution calculator that highlights the benefits of keeping money in tax-deferred accounts rather than taking cash distributions. For example, a 35-year-old with $25,000 in a 401(k) who cashes out might end up with just $15,750, after accounting for a 27% tax rate and a 10% early-withdrawal penalty. In contrast, rolling it over into an IRA could see the account grow to an estimated $252,000 before taxes by age 65, assuming an 8% average annual return.
By making informed choices about rolling over retirement savings, you can significantly enhance your financial security in retirement.
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