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VIDEO: Leaving the Railroad with your 401k

Retirement Financial Planning


Transcript:

If you've left the railroad or are planning on leaving the railroad and you want to know what to do with your 401(k), watch this video.

Welcome everyone, to the Railroad Retirement Whiteboard. My name is John McNamara of Highball Advisors and today we're going to talk about their 401(k), that's the investment vehicle that you railroaders have been putting all your retirement assets in as you've been working in the railroad, the railroad's been matching it as you've been growing and growing and growing. However, you're leaving in the railroad or have left the railroad and now you have this retirement portfolio and it's sitting at the railroad. So what are the things you can do with it? Well, there's a couple of things. So you can leave it there at the railroad and let them continue to manage it, or you can roll it over into maybe a new employer, unless you're retiring obviously, you can roll over to there. You can do that, or one other thing I want to talk about is rolling it over to a IRA and we'll talk about the benefits of it and give you some food for thought.

So let's just go through it. Investment choices, one of the big reasons you always see on the reasons why people roll over the 401(k), it's just a lot more investment opportunities. 401(k) plans have limited investment options, and now there's thousands and thousands of investment choices. So a lot of low, in my case at Highball Advisors, I use a lot of low cost ETFs. So there's a lot of choices there. Better communications, so you've left the railroad, thousands of people have left the railroad don't work there anymore. So you're really not on top of the pecking order as much, so communicating with the people to talk about your retirement plan, it can get confusing and difficult sometimes, so the communication process we're talking about. This is a big one here, is the Roth conversions.

Because I know a lot of railroaders, if you've left the railroad, you might be leaving the railroad at 60. And you've had your 30 years, that's full retirement age. And that is one of my big planning pet peeves is it gives you opportunities to do some Roth conversions and you can only do Roth conversions, can't do them out of a 401(k), you can only do them out of an IRA. So you have to roll it over to an IRA and then roll the IRA over into a Roth conversion. So great tax saving tip there to take advantage of. And that can only be done through a roll over to an IRA. So that's something to think about. Fewer rules, it's just a lot of plans have... Each plan has their own rules, so some railroads, each one has this rule, that rule, that rule. IRAs are just governed by the IRS, so there's one set of rules, it's very straight forward.

This one I thought was interesting, also, was NUA distributions. So you've had the 401(k) and a lot of railroaders will have railroad stock in there. We want to take advantage of the tax breaks with that railroad stock, by rolling that over separation of service distribution out of the 401(k), roll the assets over into an IRA, and take the railroad stock and put that into a taxable account and enjoy the capital gains tax break versus the ordinary income tax rate if you took distributions out of a 401(k). So that's a big savings, so that's another benefit. And finally, there's estate planning aspects. If something, unfortunately, happens to you, you're a 401(k), they're just going to distribute a lump sum to your heirs and there could be a big tax consequences out of that versus rolling into an IRA where it's much more manageable and you can control the distributions.

So those are my six top benefits, I could probably give you a couple more, but that's something to think about. Take a look at that. And if you feel like these are good benefits and might interest you, reach out to me and we could talk about the benefits, we'll schedule some time and I'll walk you through all the options on how to get started. Also, in the meantime, please subscribe to my YouTube channel, I appreciate that. As always, everyone, please stay safe, stay on track, and take care. So long everybody, bye.