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How (and When) to Roll Over Your 401(k) Into an IRA

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone and is not intended to be a source of investment advice. It has not been previewed, commissioned or otherwise endorsed by any of our network partners.

When you leave a job, figuring out what to do about your 401(k) should be one of the top tasks on your to-do list. Making this choice isn’t easy, though. You have multiple options, including:

  • Leaving your 401(k) where it is
  • Moving the funds to an IRA
  • Moving the funds in the old 401(k) to your new employer’s 401(k)
  • Cashing out

Cashing out before retirement age can trigger big penalties, so you’ll likely want to choose one of the other options.

Unfortunately, if your 401(k) balance is too small or your employer’s 401(k) is shutting down — perhaps because the company went bankrupt or was acquired — you can’t leave the cash where it is. If your new employer doesn’t offer a 401(k) for their employees, moving the funds to an IRA may be your best option. This is also a good choice if 401(k) fees are high or investment options are limited.

What is a 401(k) to IRA rollover?

Moving the money in your 401(k) to an IRA is called a 401(k) rollover. A 401(k) rollover simply means you’re moving money from one account to another.

“The rollover process is simple and fairly straight-forward,” explained Paul Zachary Shelton Jr, a registered investment advisor and portfolio manager with Warwick Shore Advisors in Orlando, Florida.

To keep the process simple, you’ll need to choose the right IRA to match up with your 401(k) because there are two different kinds of IRAs:

  • Traditional IRA. Allows money to be invested with pre-tax dollars. You pay taxes on funds when withdrawn during retirement.
  • Roth IRA. Invested in with after-tax dollars. You don’t pay taxes on withdrawals as long as you follow specific requirements, such as having the account open for a minimum of five years.

Most 401(k)s are invested in with pre-tax dollars; however, some employers also offer a Roth 401(k). If you have a Roth 401(k), you should roll the money into a Roth IRA. You haven’t received a tax break for contributions, so you want to preserve the tax benefits you’ll enjoy later.

However, it makes sense to open a traditional IRA if you have a traditional 401(k). That way, you’re putting money contributed with pre-tax funds into an account that also allows pre-tax contributions. “There’s no withdrawal penalty or taxation associated with this option,” Shelton said.

If you choose a Roth IRA instead, you’d have to pay taxes on the amount contributed, since you’d be converting to an account that gives you a tax break later.

401(k) vs. traditional IRAs

While both a 401(k) and traditional IRA have similar tax benefits — which is why a rollover doesn’t result in a tax bill — that doesn’t mean they’re the same.

With a 401(k), your employer chooses who administers your plan. Sometimes, this administrator charges high fees. Plus, your investment options may be restricted. “Many employer-sponsored retirement plans have limitations on the investment offerings available,” Shelton said.

With an IRA, account owners have more control. You can choose which brokerage you put your money into and, as Shelton explained, you often have more investment choices.

401(k)s and IRAs also have similar rules on withdrawing funds. Once you reach the age of 59 and a half, you can take money out without incurring early withdrawal penalties. When you turn 70 and a half, you must start taking the required minimum distributions (RMDs), which are mandatory withdrawals based on your portfolio value. If you don’t take RMDs, you’ll face tax penalties of 50% of the amount you should’ve withdrawn.

The process of getting your money out can vary. “When it comes time for RMDs, distributions are easily made from the IRA without having to go through a tedious process with the retirement plan provider,” explained Shelton.

Both 401(k)s and IRAs also allow earlier withdrawals under certain circumstances, such as paying on medical expenses that exceed a certain percentage of your income.

 Opening Your AccountInvestment OptionsRules for Withdrawals

IRA

IRAs can be opened in a financial institution of your choosing, including brokerage firms and robo-advisors

Flexible

You can begin penalty-free withdrawals at 59 and a half or earlier, if specific circumstances apply

Required minimum distributions begin at 70 and a half

401(k)

Must open the account with your employer’s 401(k) administrator

Limited by your plan administrator

You can begin penalty-free withdrawals at 59 and a half or earlier, if specific circumstances apply

Required minimum distributions begin at 70 and a half


How to roll over 401(k) accounts to IRAs

Rolling over your 401(k) to an IRA is quick and easy. Shelton explained the process involves opening a new rollover IRA account and requesting your funds to be moved over. The money will either be sent to you — allowing you 60 days to deposit it in your new IRA — or will be sent directly to the financial institution where you open your new IRA and the brokerage will deposit the money.

Each individual 401(k) provider has their own special form for requesting the transfer of funds. You’ll need to provide your name, address, account number, date your employment terminated, and what you want to do with the money.

The process of opening a new IRA also varies from one provider to another, but you can usually quickly do it online by providing basic information.

How to choose an IRA provider

Picking a new IRA provider is the complicated part of rolling over a 401(k) because there are so many available choices.

Many financial institutions, including banks, brokerage firms, and robo-advisors offer accounts, so you’ll have to decide which is right for you.

What to look for when comparing options

Key terms to look for when you choose your new IRA provider:

  • Fees charged for the account
  • Minimum deposit required (if applicable)
  • Investment options, including mutual funds, ETFs and individual stocks
  • Commissions charged for buying and selling investments
  • Investment management and/or assistance

Most financial institutions won’t charge a fee for opening or maintaining the account, but they will charge if they help you manage your money.

Hands-off vs. hands-on options

When you were investing in your 401(k), your plan administrator probably narrowed down your investment options and may have provided a simple way to choose investments. Many 401(k)s, for example, suggest investments for you based on your age and risk tolerance.

Not all IRA providers offer this type of help, and many brokerage firms let you choose from a huge array of investments with no direction or advice. If you feel comfortable researching different assets, this type of hands-off IRA gives you freedom, flexibility and some cost-savings.

You’ll need to choose a different kind of account if you don’t want to be tasked with selecting your own investments.

The cheapest way to get help picking investments is to use a robo-advisor such as Wealthfront or Betterment. Both services ask you some basic questions and use an automation tool to pick from a pool of diversified investments for you.

You could also opt for an IRA that’s professionally managed by an investment advisor, but this is going to be more costly.

Should I roll over my 401(k)?

Rolling over your 401(k) into an IRA can give you a lower-cost account with more investment options than keeping your 401(k) where it is or moving the money to your new employer’s 401(k). You’ll need to decide if this option is right for you. If it is, research IRA providers to make sure you open the right kind of IRA to meet your needs.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

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SIMPLE IRA Contribution Limits 2020

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone and is not intended to be a source of investment advice. It has not been previewed, commissioned or otherwise endorsed by any of our network partners.

SIMPLE IRAs are tax-advantaged retirement savings accounts that benefit small business owners and the people who work for them. In addition, you can use the SIMPLE IRA to save for retirement if you are self-employed. Like many other retirement savings vehicles, SIMPLE IRAs are subject to annual contribution limits.

SIMPLE IRA contribution limits

The annual SIMPLE IRA contribution limits for employees and employers in 2020 are as follows:

Annual SIMPLE IRA Contribution Limits

Employees under the age of 50

$13,500

Employees 50 years and older

$13,500, plus $3,000 in catch-up contributions

Employer matching contributions

Up to 3% of employee’s salary

Employer non-elective contributions

2% of the employee’s salary

SIMPLE IRA contribution limits 2020 for employees

For 2020, the amount employees may contribute to a SIMPLE IRA plan is capped at $13,500 per year. That’s an increase from 2019’s limit of $13,000, and an even bigger leap from the $12,500 limit imposed from 2015 to 2018.

It’s worth noting that for employees who are also participating in other employer-sponsored retirement plans, such as 401(k) or 403(b) plans, aggregate annual contributions to all plans cannot exceed $19,500 in 2020. For those 50 and older, the overall annual limit for catch-up contributions is $6,500 for 2020, for a total ceiling of $26,000.

SIMPLE IRA contribution limits 2020 for employers

If a small business owner chooses to offer a SIMPLE IRA plan, they are required to make contributions to their employees’ accounts. They may choose to either match their employees’ contributions, up to a certain limit, or make non-elective contributions.

If an employer chooses matching contributions, their match is capped at 3% of an employee’s annual compensation. While an employer can make matching contributions of less than 3%, the match cannot be less than 1% of the employee’s annual compensation — and it cannot be less than 3% for more than two out of five consecutive years.

If an employer chooses non-elective contributions, they are required to put money into their employees’ SIMPLE IRAs regardless of whether the employees themselves make contributions. With non-elective contributions, the employer must make fixed contributions of 2% of their employees’ compensation. For 2020, the maximum amount of an employee’s total compensation that can be considered for calculating a non-elective contribution is capped at $285,000, up from 2019’s cap of $280,000.

What are the contribution deadlines for a SIMPLE IRA?

Employers are required to deposit their employees’ SIMPLE IRA contributions within 30 days after the end of the month in which those contributions were withheld. Employers are required to make their matching or non-elective SIMPLE IRA contributions by their tax return filing deadline, including extensions.

For people who are self-employed, the deadline for depositing SIMPLE IRA contributions for a calendar year is 30 days after the end of year, or Jan. 30.

SIMPLE IRA contribution limits vs. Roth contribution limits

While SIMPLE IRA contributions are capped at an annual limit of $13,500, annual Roth IRA contribution limits are much lower. For 2020, Roth IRA contributions are capped at $6,000, with an additional $1,000 allowed for catch-up contributions for those 50 and older.

Another differentiating factor of Roth IRAs is that they have income phaseout limits. Depending on how much you make, you may be limited to how much you can contribute or whether you can contribute at all. For 2020, single filers cannot contribute to a Roth IRA if they make more than $139,000, and if married and filing jointly, you’re only able to contribute if you earn less than $206,000.

Can you contribute to both a SIMPLE IRA and a Roth IRA?

You can contribute the maximum allowed amounts to both a SIMPLE IRA and a Roth IRA, as their contribution limits are not cumulative. In fact, most financial advisors recommend you max out both your SIMPLE IRA and Roth IRA if you can afford to do so, as they offer different tax benefits.

While SIMPLE IRA contributions are made pre-tax, and therefore lower your taxable income, your Roth IRA contributions are made with after-tax dollars, so qualified distributions are tax-free.

“Advisors talk about diversification all the time, and usually they are talking about stocks and bonds,” said Gregory Kurinec, a certified financial planner with Bentron Financial Group in Downers Grove, Ill. “But investors will want to diversify their accounts into different tax categories as well. By having a combination of pre-tax (SIMPLE IRA), after-tax advantage (Roth IRA) and non-qualified, this will allow the investor to pick and choose which account to take funds from to best impact their tax situation.”

What is a SIMPLE IRA?

A SIMPLE IRA is an effective retirement savings match plan, especially for small business owners. SIMPLE IRAs are available to small businesses with 100 employees or fewer.

SIMPLE IRAs require employers to make contributions on behalf of their employees, either up to 3% of their employee’s compensation as an employer match or a flat 2% of the employee’s compensation.

As with most financial products, when it comes to saving for your golden years, a SIMPLE IRA is just one of the many options available to you. Explore all of the options at your disposal when deciding how to build your nest egg.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

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Review of Altfest Personal Wealth Management

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone and is not intended to be a source of investment advice. It has not been previewed, commissioned or otherwise endorsed by any of our network partners.

Altfest Personal Wealth Management is an investment management firm based in New York City. The firm typically only accepts clients with a minimum investment of $1 million. For these high net worth clients, Altfest Personal Wealth Management provides customized investment portfolios with comprehensive financial planning services. The firm has 16 employees who provide investment advisory services, and currently oversees $1.21 billion in assets under management (AUM).

All information included in this profile is accurate as of February 10th, 2020. For more information, please consult Altfest Personal Wealth Management’s website.

Assets under management: $1,210,000,000
Minimum investment: $1 million (waivable at the firm’s discretion for young professionals)
Fee structure: A percentage of AUM, ranging from 0.50% to 1.40%, depending on account size; hourly fees; fixed fees
Headquarters:445 Park Avenue
Sixth Floor
New York, NY 10022
www.altfest.com
212-406-0850

Overview of Altfest Personal Wealth Management

Dr. Lewis Altfest launched Altfest Personal Wealth Management in 1983. He is still the majority owner of the firm and acts as CEO. He runs the organization along with his wife, Dr. Karen Altfest, the firm’s executive vice president, and their son, Andrew Altfest, the firm’s president. Both Lewis and Karen hold Ph.Ds; Lewis is an associate professor of finance at Pace University.

Including the Altfests, the firm has 37 total employees, 16 of whom provide investment advisory services. Altfest Personal Wealth Management specializes in creating customized, actively managed investment portfolios for high net worth clients. The firm and the Altfest family have won numerous awards for their performance, and both Lewis and Karen are regular contributors to financial news programs and publications.

What types of clients does Altfest Personal Wealth Management serve?

Altfest Personal Wealth Management primarily works with individual investors. A client usually needs a portfolio of at least $1 million to open an account with the firm — however, Altfest does make exceptions to this account minimum for “young professionals” who they believe will become high net worth clients in the future. The firm’s individual client base is currently split 40/60 between individuals and high net worth individuals, with the SEC defining high net worth individuals as those with at least $750,000 under management or a net worth of at least $1.5 million.

While the firm works with a diverse range of clients, it specializes in advising women, executives and healthcare professionals. In addition to individual investors, Altfest Personal Wealth Management also works with pension plans, profit-sharing plans, trusts, estates, corporations and other business entities.

Services offered by Altfest Personal Wealth Management

Altfest Personal Wealth Management specializes in investment management and financial planning. However, the firm’s investment management services are available to individuals and small businesses only; these services are not offered to investment companies, pooled investment vehicles, large businesses and institutional clients.

Most of the firm’s investment accounts are run on a discretionary basis, meaning that Altfest Personal Wealth Management advisors can make trades on behalf of the client. The firm does have a few nondiscretionary accounts, where the client must approve all trades themselves.

If a client only wants a few investment recommendations, rather than the management of their entire portfolio, the firm can provide this service as well.

Altfest Personal Wealth Management also offers comprehensive financial planning, as many of its advisors hold the certified financial planner (CFP) designation, a professional certification for financial planners. The firm’s financial planning services include the creation of a detailed financial plan outlining the necessary steps to achieve their goals and objectives. The plan can address specific areas, such as college savings, estate planning and debt management.

More specifically, Altfest’s services include:

  • Investment advisory services and portfolio management (mainly discretionary but some non-discretionary)
  • Financial planning
    • Retirement planning
    • Trust and estate planning
    • Charitable planning
    • Education planning
    • Tax planning
    • Cash flow forecasting
    • Budgeting and strategic planning
    • Long-term care planning
    • Debt management
    • Divorce planning
  • Insurance and risk management
  • Workshops and seminars
  • Newsletters and publications

How Altfest Personal Wealth Management invests your money

Altfest Personal Wealth Management builds unique, customized portfolios for each client based on their time horizon, risk tolerance, income level and long-term goals.

As part of this analysis, the firm follows a system called Total Portfolio Management. Rather than only looking at a client’s investment history, the firm also gets to know their entire financial plan, including income, debts, spending requirements and future earnings potential. The firm uses this information to finetune a portfolio comprised of stocks, bonds, mutual funds, ETFs and private funds.

Altfest Personal Wealth Management follows an active investment approach: this means the firm is regularly trading in an attempt to earn above-average portfolio returns.

Fees Altfest Personal Wealth Management charges for its services

For portfolio management services, Altfest Personal Wealth Management charges a fee based on a percentage of assets under management, with the rate ranging from 0.50% to 1.00%, depending on the size of the client’s portfolio. Altfest does not charge trading commissions or performance-based fees.

Portfolio SizeAnnual Asset-Based Fee
First $3 million*1.00%
Between $3,000,001 and $6,000,0000.75%
Over $6,000,0000.50%
*If a portfolio falls below $2 million in value at the end of the quarter, the firm will assess an additional 0.10% fee on top of the asset-based fee listed above.

For “young professional” clients who don’t meet the firm’s portfolio minimums, Altfest charges the following fee schedule:

  • In the first year, the firm charges an annual fee of either 1.10% of assets under management or $2,500 whichever is greater.
  • After the first year, the firm charges 1.10% of the portfolio value or $1,500 per year whichever is greater.

This rate includes cash flow analysis, investment analysis, investment management and 401(k) recommendations. Clients who want additional financial planning services will be billed at a rate of $250 per hour.

If a client only wants standalone investment recommendations, Altfest Personal Wealth Management charges either an hourly fee ranging from $500 to $800 an hour, or a fixed fee of at least $3,500 for specific investment recommendation requests.

Finally, some of the investments included in Altfest’s portfolio recommendations may carry additional fees. Clients are responsible for covering these costs, though the money won’t go to Altfest Personal Wealth Management.

Altfest Personal Wealth Management’s highlights

  • Wide range of awards: Over the past few years, Altfest Personal Wealth Management has been recognized as a top investment advisor by publications including Barron’s, Forbes, Financial Times and Financial Advisor magazine.
  • Highly educated management team: The heads of the firm, Dr. Lewis Altfest and Dr. Karen Altfest, both hold Ph.Ds; Lewis is also an associate professor of finance at Pace University. In addition, many of the financial advisors at the firm hold the CFP designation.
  • Customized investment approach: Altfest Personal Wealth Management designs a customized portfolio for every client, tailored to their specific needs, and don’t lump people into one-size-fits-all funds as some firms may do.
  • Extensive financial planning in addition investing: Altfest Personal Wealth Management also specializes in financial planning. When the firm creates a portfolio recommendation, it goes over a client’s entire financial situation before designing the portfolio, not just their existing investments.
  • Specialty in advising women, executive and healthcare clients: The firm specializes in advising women, executives and professionals in healthcare. Additionally, Forbes named Dr. Karen Altfest one of the top women advisors in the country in 2017, 2018 and 2019.

Altfest Personal Wealth Management’s downsides

  • Above-average investment fees: Altfest Personal Wealth Management charges an annual 1.00% asset-based fee on the first $3 million in a client’s account (plus an additional 0.10% per quarter if their portfolio value falls below $2 million). In comparison, the median investment management fee charged by firms for accounts over $2 million is 0.75%, according to Kitces.
  • High minimum to open an account: It takes at least $1 million to open an account with Altfest Personal Wealth Management. While the firm does waive the minimum at its discretion for “young professionals,” the typical investor would need to be quite wealthy to make use of the firm’s services.
  • Only has one location in New York City: The only way to visit the Altfest Personal Wealth Management office in person is in New York City, the firm’s only location.

Altfest Personal Wealth Management disciplinary disclosures

Whenever an SEC-registered firm or its employees or affiliates face disciplinary action, including a criminal charge, a regulatory infraction or a civil lawsuit, the firm is required to report that incident in its Form ADV, paperwork filed with the SEC. Altfest Personal Wealth Management reports in its Form ADV that it has faced no such incidents over the past 10 years, indicating a clean disciplinary record.

Altfest Personal Wealth Management onboarding process

To start the onboarding process with Altfest Personal Wealth Management, you can request a free consultation with one of its advisors. You can contact the firm either by phone at 212-406-0850, by email at [email protected] or by filling out a form on the firm’s website. As part of the onboarding form, the firm asks you to share your story, which helps the firm start determining whether you are a good fit based on your income and profession.

If it seems like a good match, the firm’s advisors will then get to work designing your customized investment portfolio based on your goals, risk tolerance and overall financial situation. When you’re ready to launch, the firm’s advisors would then take care of opening your new accounts, transferring over your existing accounts, making the necessary investments and keeping up with the records for your portfolio.

The bottom line: Is Altfest Personal Wealth Management right for you?

If you’re a high net worth individual or a young professional who wants personalized investment recommendations combined with financial planning, Altfest Personal Wealth Management could be a good choice. This may be especially true if you are in one of the firm’s specialty client categories: women, executives and healthcare professionals. Since Altfest Personal Wealth Management only has one location in New York City, however, the firm might be a better choice if you live in the Northeast rather than other parts of the country.

On the other hand, Altfest Personal Wealth Management’s comprehensive services do not come cheap. The firm’s fees are higher than average, and you’d need at least $1 million to open an account (unless Altfest waives the minimum because you’re a young professional). If you want a simpler investment strategy or prefer to manage your portfolio more on your own, you could find less expensive advisors than Altfest Personal Wealth Management.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.