A solid investment plan is critical for a stable and comfortable retirement. If you plan to dedicate 30 to 40 years of your life to employment, you want to prioritize an exit or retirement strategy that works best for your situation. The reality of the current day career is that you may not stay with the same company for the entire duration of your working years. Moreover, this means that when weighing your options between a Roth and a traditional 401(k), you have to consider which one is easier to transition from one employer to the next.
At Your Current Employer
Most people intend to progress with their employer over the years, given the expectation that you will make more income at your point of retirement than when you started. As a result, it would be more beneficial to use a Roth for your initial plan. Subsequently, requiring you to pay taxes on the money going into the account for your future withdrawals after you turn 59.5, and you’ve held the 401(k) for more than five years to be tax-free.
Transitioning to a New Job and the Final Working Years
In the process of changing employers, you have four options for your 401(k) plan. If you started with a traditional 401(k) where your contributions are tax-deductible, and when meeting the requirements of the IRS qualifications, future withdrawals after the age of 59.5 are considered taxable income. You have the option of rolling these assets into a Roth IRA. In comparison, you also have the choice to consolidate your plan into the plan of your new employer if it shows to be more beneficial for your goals. Rather than making any changes, you also can keep the 401(k) with your former employer. You also have the final option of cashing out your 401(k), which if you’re under the age of 59.5 and have had your plan for less than five years, there will be penalties for early withdrawal. As a result, this could be a critical setback towards your retirement goals, sense at this point you’re unable to contribute this cash to another IRA plan. In conclusion, having a plan is better than no plan at all.