Three Things You Didn't Know About Retirement Accounts

Three Things You Didn't Know About Retirement Accounts

September 30, 2022
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Planning for retirement is a decades-long journey. Throughout this journey, you continue to learn more and more about ways to save for retirement, your different options for retirement accounts, tax strategies, and retirement planning in general. However, there may still be aspects of retirement accounts that you are not aware of. Continue reading to learn three things you didn’t know about retirement accounts.

1. 401(k) Fees Can Be Lowering Your Growth

You may just be contributing funds to your 401(k) without looking at the expense ratio of the fund. The expense ratio is how much it costs to invest in the fund based on a percentage of the total assets in your fund. The expense ratio varies from fund to fund. It is important to understand this cost of investing since it cuts into your overall annual return on your investment. If your 401(k) fund is supposed to have a return of 6% and the expense ratio is 2%, your actual gain is only 4%. To combat this and get a true return, you will need to contribute your return percentage plus your expense ratio.

2. You Can Switch A Life Insurance Policy For An Annuity

If you have a cash-value life insurance policy that is paid up and don’t need it anymore, you could exchange the policy for an annuity. Section 1035 allows this exchange tax-free. You could trade in the life insurance policy for an income annuity to provide you with a guaranteed stream of income. For the income annuity, you can choose a deferred or immediate type to decide when you begin receiving income from the annuity. You are also able to choose the payout term, whether it’s several years or the rest of your life.

 3. IRAs Can Be Transferred And Rolled Over

You are not stuck with the same brokerage you opened your IRA with. As long as you keep the same type of IRA account, you can transfer to another brokerage or roll over your account.

To transfer, you will have the funds from your IRA directly delivered to another financial institution. These transactions are not reported to the IRS but could come with account closeout, account set-up, and/or annual fees so be aware before making a transfer.

For a rollover, you are moving funds from one type of retirement account into another within 60 days of withdrawing the funds yourself. A common rollover is to move funds from your 401(k) to an IRA. However, you can also roll your IRA funds into a 401(k). This is a great option to prevent having to take required minimum distributions (RMDs) since 401(k) funds where you currently work are not subject to RMDs, therefore not having to pay taxes on the funds.

Navigating your retirement accounts can be tricky, but an experienced and knowledgeable financial advisor can provide excellent guidance and help. Contact me to learn what you need to know about your retirement accounts. Email me at jason@fp-wealth.com or call me at 402-454-7204 to schedule your consultation.