What About Retirement?

Evaluating 401(k) Choices After a Layoff

By Timothy Plonski, CFP® LUTCF


Consult with a financial professional to ensure you make the right decisions for your future. 


If you, a family member or a friend become one of the thousands of Americans laid off, you will face the important decision of what to do with your 401(k) account.


While a “job well done” in the past used to translate into job security, the same doesn’t always hold true today. If you are uncertain as to how to handle your retirement account monies, it is important that you are fully informed of all the options available to you. There are tax implications and penalties for early withdrawal of retirement funds. Depending on your age and income bracket, you could experience a significant reduction of your savings by failing to roll it into another qualified account.


Some employers require that employees who leave the company move the money in their 401(k) account out of the corporate plan. Others allow employees to leave the money in the plan, where it can remain, but no new contributions can be made. In a lay-off situation, however, you may be uncomfortable leaving your savings with that company.


It may be tempting to take a lump-sum cash distribution. Keep in mind, however, that you will pay ordinary income tax on the amount plus a 10 percent penalty for early withdrawal if you are under age 55. In addition, you will make a dent in your retirement savings that you may never replace, and you will lose the benefit of those assets potentially compounding over the years.


Rolling the distribution directly into an Individual Retirement Account (IRA) lets you avoid paying taxes or penalties and keeps your savings available for your future retirement. Should you have a critical need for the money, you can take an early distribution and pay the penalty, or you may qualify for an exception to the penalty. According to Internal Revenue Service Publication 590b, exceptions can include unreimbursed medical expenses, medical insurance premiums and higher education expenses. Each of the exceptions has specific requirements, and you should consult a tax advisor before taking a distribution.


A rollover can have potential drawbacks, including potentially higher annual expenses than 401(k) plans. In addition, you should consider your short-terms needs for funds prior to completing a rollover, since you cannot take a loan against an IRA as you may be able to do with a 401(k) plan. Keep in mind that if you’ve been terminated, you no longer have the option to take a loan against your 401(k), and you will owe penalties on any previous loans you’ve taken. If you roll your 401(k) from your previous employer to your new employer, however, you may be able to take a loan on all proceeds under the new plan.


In the event of a layoff, we can help you, your friends or your family members understand the options for your 401(k) account and the benefits of keeping that money earmarked for retirement. Call Timothy Plonski, CFP® LUTCF at 216-313- 9999 for a review of your 401(k) situation or schedule a free initial consultation. We are happy to include your tax advisor in our meetings with you.

Communicating with a Financial Professional

Be certain your financial professional is asking the right questions.


People generally expect financial professionals to focus on the fiscal side of their clients’ retirement plans. Without a doubt, ensuring clients have adequate savings to continue living comfortably is extremely important, and advisors do their best to help clients attain this security. But a deeper knowledge and understanding of the people they serve can help them provide an even higher level of service.

So let your financial professional get to know you not only professionally, as a client, but on a personal level as well. As a starting point, here are a few important things to share when you meet to talk about your retirement: 


Activities – Discuss the activities you plan to participate in most during retirement. Your advisor may assume that golf, social activities and traveling will take up the bulk of your time. While sometimes that’s an accurate prediction, it’s often too simple. If that’s the case, provide a longer list of things you plan to do in the future. 


Passion(s) – What did you enjoy most about your life’s work? Perhaps you could find a way to focus on that area in a new arena. Or is there something you have always wished you could do or a cause you’ve always wanted to become involved in? Share any visions you have for personal growth or things you would like to do to make a difference


Legacy – It’s essential to let your financial professional know what you want to be remembered for. No one enjoys talking about death, but letting your financial professional know what charities or causes you want to benefit will ensure your estate will get distributed as you wish.


As a rule of thumb, you should remember communication is the most important aspect of retirement and estate planning. Express your complete desires to your financial professional, even those you may think are less important. With nothing left unsaid, your financial professional will get to know you better, understand your wishes fully and be better equipped to help you make important financial decisions. 

Contact Timothy Plonski

In the event of a layoff, we can help you, your friends or your family members understand the options for your 401(k) account and the benefits of keeping that money earmarked for retirement. Call Timothy Plonski, CFP® LUTCF at 216-313- 9999 for a review of your 401(k) situation or schedule a free initial consultation. We are happy to include your tax advisor in our meetings with you.


Advisory services offered through Arbor Point Advisors, LLC. Securities America, Inc. and Arbor Point Advisors, LLC are not affiliated with JK Investment Group, Inc., Myers Law, LLC. or Philips North America, LLC. Securities offered through Securities America, Inc., Member FINRA/SIPC. 


 For additional information and full disclosures please click the link to my website: www.jkinvestmentgroup.com