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There are multiple considerations if you're faced with a layoff or furlough. One of the more common topics is on company retirement plans, and whether you should leave the money in a 401(k) or move the funds into an individual retirement account (IRA).
Financial advisors at BECU Investment Services can provide answers to some of the frequently asked questions related to these uncertain times.
Frequently Asked Questions
- Should I leave the money in my previous employer's 401(k)/VIP plan, or move it into an Individual Retirement Account?
- Should I consider withdrawing money from my 401(k) or VIP plan?
- If I'm going to be laid off, should I reduce or stop making contributions now?
Should I leave the money in my previous employer's 401(k)/VIP plan, or move it into an Individual Retirement Account (IRA)?
Typically, you have several options to choose from with your employer's retirement plan, each of which should be carefully considered before making a decision. Because every plan is unique, it's best to consult with a financial advisor who can advise you on the pros and cons of each option, and provide guidance on the best approach based on your specific circumstances.
Should I consider withdrawing money from my 401(k) or VIP plan?
If you're considering withdrawing money from a 401(k) plan, check with the plan administrator first to verify this option is available to you.
As a general rule of thumb, dipping into retirement savings should always be a last resort: Loans against your 401(k)/VIP could be detrimental to your retirement plans and should be seriously considered.
However, the new stimulus package allows you to withdraw money from your retirement account without taxes or penalties. Normally, withdrawing before age 59 ½ triggers a 10% penalty, plus applicable income taxes. Now, you may withdraw up to $100,000 penalty-free before December 31 if you're “experiencing adverse financial consequences” due to COVID-19 or facing personal or household COVID-19 diagnoses. Keep in mind that taxes are still due on the withdrawn amount in three years – a financial burden which seems far away now but can approach quickly.
If I'm going to be laid off, should I reduce or stop making contributions now?
if you're concerned about being laid off and don't have emergency savings set aside, it's important to build those funds up first. If you can't build both emergency savings and contribute to a 401(k)/VIP, then consider diverting some of your contributions to an emergency savings account, but try to contribute at least enough to your 401(k)/VIP to meet your employer's match amount.
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Need More Help? Talk with a Professional
Financial advisors with BECU Investment Services have in-depth experience working with members facing a job loss. We can help you determine your best course of action and are ready to help. We can:
- Review your 401(k)/VIP options
- Provide the pros and cons of your pension plan options
- Develop an appropriate retirement investment strategy based on your current situation
- Determine your best course of action to help keep you financially stable
- Provide a complimentary review – your membership entitles you to talk with one of our financial advisors; it's always a good idea to get a second opinion when your future is at stake
Click here to set up a meeting with a BECU Investment Services financial advisor, email email@example.com, or call 206-439-5720. The appointment is complimentary, and can be done remotely (via phone or web). Even if you just want a second opinion, we are here to help and provide answers in this time of uncertainty.
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