By the time you reach your thirties or forties, you likely have at least a few 401(k) accounts floating around from previous employers. Not only is it important to take stock (pun intended) of these accounts for retirement planning, but it’s also important to know crucial things like balance fees, the diversity of your portfolio, and who you are funding with your money. During this deep dive into your accounts, one of the decisions you can make is to hold on to this account or roll it over into a new IRA account.
Things to Know About Your 401(k)
- A 401(k) is an employer-sponsored retirement account.
- You contribute to your 401(k) pre-tax, meaning before you receive your paycheck with tax dollars removed.
- If your employer offers a match, you should always take it. It’s free money.
- With a 401(k) plan, you get no say in where your money goes or who it funds: oil companies, tobacco manufacturers, and gun stock companies are all part of the five major funds that make up popular employer-sponsored plans, as well as many other companies that may, or may not, align with your values.
What is an IRA?
An IRA stands for an Individual Retirement Account. There are many types of IRAs that can be set up in addition to yearly 401(k) contributions or that can be created from a 401(k) rollover.
- Traditional IRA: A long-term strategy, a traditional IRA allows you to contribute with pre-tax dollars now and pay taxes when you withdraw your money, at age 59 ½ or later.
- Roth IRA: This popular type of account allows you to contribute with already-taxed dollars now and pay no taxes when you withdraw from your account. You can remove money at any time but will pay taxes on any growth unless you wait until age 59 ½.
- SEP IRA: Also known as a Simplified Employee Pension, a SEP IRA is for self-employed individuals and small business owners. It operates similar to a traditional IRA but allows for higher contribution limits as it’s not designed to act in conjunction with an employee-sponsored 401(k).
After six years, the U.S. Treasury Department has announced inflation-adjusted figures that will allow retirement savers to put away even more!
2019 annual limit for a new IRA is $6,000 or $7,000 if 50+. It’s the same for 2020.
The 2019 limit for a SEP IRA is $56,000. $57,000 for 2020.
There is no limit to the amount you can roll over from a 401(k) account to an IRA, though you may be subject to taxation depending on the account type.
Why Choose a Socially Responsible IRA
One of the best reasons to either start a new IRA or rollover your 401(k) into a new IRA account, is the flexibility of your investment choices. You can choose to invest, or divest, from companies and funds that don’t meet your personal values.
- Want to promote peace, eliminate armed conflicts, and avoid gun manufacturers? Consider our Peace Portfolio.
- Want to support the #Black Lives Matter movement, companies confronting human rights and diversity issues, and companies with more racially diversity in the workplace? Check out our Human Rights & Diversity Portfolio.
- Want to help end climate change and embrace green tech? Our Environment Portfolio may be for you!