Company Sponsored Retirement Plans
Do you have a 401(k) or another company-sponsored retirement plan? That’s good…to a point. A Bill has passed the House (not yet passed the Senate) that will blindside millions of people. Your hard-earned 401(k) funds will be redirected without your permission and reversing this will be very expensive.
Since 1974, if you left your employer, you had seven options when transferring your 401(k).
1. Leave the funds in your old plan.
2. Transfer your retirement plan funds to a plan at your new employer.
3. Take the money out (pay taxes) and spend it as you like.
4. Transfer the funds to a mutual fund managed by the same equity company that managed your 401(k).
5. Buy an Annuity from an insurance company selected by the 401(k) manager.
6. Transfer some or all of it to a Self Directed IRA which gave you the widest choice of investments.
7. Do nothing – Just leave the account where it is till you can decide what is best for you.
This method was well and good and these options have worked since 1974. For many individuals, option #7 was a godsend. There are many questions and challenges when we change employers or even careers, and sometimes taking no action with your money till your mind clears is the best thing you can do.
In general, everyone liked that there were seven options for you to choose from, except one group. The insurance companies that sell Annuities. We know that insurance companies love selling Annuities because Annuities are wildly profitable. However, due to Annuities’ high fees, inflexibility, and step charges, if you want to make even the slightest change, many people were not impressed by option #5. Instead, they selected an option that fit their needs.
Insurance Companies Calling the Shots
For years the insurance companies have lobbied to craft a way to get more people to buy their high profit margin Annuities. They trumped up misleading statistics, lobbied, and donated to political campaigns of House and Senate Committee Members. In February, it finally worked for the insurance lobby (but against you and me) and the House passed a bill that has the effect of completely eliminating Option #7. How are they doing this?
Step 1. Taking away everyone’s option to think through what is best for them.
Step 2. Adding a clause that if the person does not make a hard decision by a specified date, all their 401(k) funds will be used to buy a Life Annuity from a company selected by your 401(k) manager. No ifs, ands, or buts. Your money is transferred to an insurance company.
- Can you get it back? Sure, by paying the penalty for changing your mind. Even though you never made the decision in the first place.
- Will there be a defense? YES, upon leaving an employer, contact IRA Club or another Self Directed IRA provider. Ask them to open an account for you and transfer the funds from the old 401(K).
The Self Directed IRA allows you to invest or just hold funds in place (100% safe, FDIC insured) while you take the time to decide what path is best for you. FYI, if later you decide you do want an Annuity, no problem. There are plenty of insurance companies who will be happy to sell you an Annuity any time you want it.
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