Retirement turns your 401(k) from a savings account into a decision. You generally have four paths, and each has trade-offs worth understanding before you sign anything.
Your four main choices
- Leave the money in your former employer's plan, if the plan allows it.
- Roll it into an IRA, which you control.
- Roll some or all of it into an annuity held as an IRA, for protection or lifetime income.
- Take the money out — usually the most expensive choice because of taxes.
The direct rollover rule
If you move the money, ask for a direct rollover, where funds go straight from the plan to the new account. If a check is made out to you, the plan typically withholds 20% for taxes, and you generally have 60 days to deposit the full amount or face taxes and possible penalties.
Why some people move part of it into an annuity
An annuity can protect a portion of savings from market losses and can turn that portion into income you cannot outlive. Many people move only part of their 401(k) this way and keep the rest flexible. Guarantees depend on the claims-paying ability of the issuing insurer.
Mistakes to avoid
- Cashing out without understanding the tax bill.
- Moving everything without keeping enough accessible for emergencies.
- Forgetting that required minimum distributions generally begin at age 73.
- Making the decision in a single meeting without comparing options.
The bottom line
You do not have to decide everything at once, and it does not have to be all or nothing. A direct rollover preserves your tax advantages, and splitting between flexibility and protected income is common.
Learn about annuitiesThis article is for educational purposes only and is not tax, legal, or investment advice. Insurance and annuity products are not deposits, not FDIC insured, and not guaranteed by any bank. Guarantees are backed solely by the financial strength and claims-paying ability of the issuing insurer. Product features vary by insurer and state.
