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Financial Wellness

Take a more in-depth look at some frequent questions related to your overall financial wellness.




Financial Wellness Articles


If you’re asking this question, then it sounds like you’ve decided to roll in your 401(k) from a previous employer. There are many reasons why you’d want to, as well as many reasons why you wouldn’t. We won’t outline all of those here, but if you want to know some reasons why you shouldn’t rollover your 401(k)—just to be sure you’re making the right decision—check out this article from Morningstar.com.

To roll over your 401(k), first you have to figure out where you want it to go. Your options essentially are to rollover to an IRA or to your current employer’s 401(k). If you want to rollover to an IRA, first do your research on the right brokerage firm or mutual fund company to house your account. Then, all you need to do is request a direct rollover from your 401(k) to your IRA provider (that is, after you fill out the necessary paperwork if you’re opening a new account).

Rolling in to your current employer’s 401(k) may include a fair amount more paperwork, depending on the 401(k) provider. Be aware that you may also have to wait a certain amount of time before your balance is deposited in your current plan.

Please keep in mind, whether you’re rolling over your 401(k) to an IRA or your current plan, to have your old 401(k) provider make the check payable to your IRA or new 401(k) provider and sent directly to them, not to you. For more information on why this is important, as well as for a more in-depth explanation of the rollover process and your options, read this article from Christine Benz, also on Morningstar.com.

Deciding how to go about paying off debt while putting money toward retirement can be tricky, and the right strategy depends on your situation. Here are four steps to consider when thinking about how to balance paying off debt while also saving for retirement:

1. Always make your minimum loan payments

Beyond meeting your basic needs for things like food, health, and housing, your priority should be making your minimum loan payment every month. Build that amount into your budget and set up automatic payments, if possible, since missing a payment can lead to late fees, a reduced credit score, or other repercussions.

2. Take advantage of your employer’s retirement savings match

Once you’ve got your minimum loan payments covered, take advantage of your company’s 401(k) match if you have one. Your match is basically free money and a part of your total compensation; it can have a big impact on your retirement savings over time.

Better still, keep an eye out for a new benefit being offered in some plans which gives a 401(k) match for student loan repayments. It’s a relatively new feature, but something that may become more common in the coming years.

3. Assess your loan’s interest rate

If the interest rate of your loan is higher than the return you would likely get by investing your money in a retirement account, you might want to prioritize paying off your debt before increasing your contributions to your retirement account beyond the amount needed to take advantage of your employer match, if offered.

If you do have a high rate on private loan, research refinancing options to see if any are a good fit for you. If you have a federal student loan, refinancing might not be a good idea since you can only refinance those with a private lender. This means forfeiting federal loan benefits and access to student loan relief programs like what’s been offered during the pandemic—or any that arise in the future.

4. Consider your situation

After taking those first few steps, if you have money leftover in your monthly budget, consider what might make the most sense for you. If you don’t have an emergency fund, it's always a good idea to have a buffer in place should an unexpected expense pop up.

From there, check Morningstar® Retirement ManagerSM to see if your contribution rate puts you on track to meet your savings goal and adjust upward if you can. If offered in your plan, opting into an auto-escalation feature is also a great way to gradually save more over time (for example, you might elect to increase your savings rate by 1% per year). It’s an especially ideal tool for someone who may not remember to check and update their savings rate each year—which is probably a lot of us!

The short answer is yes, but with caveats.

The standard age to withdraw from your 401(k) without penalty is 59 ½ years old. If you’re an early retiree who has left your employer at age 55 or later and kept your money in the old 401(k), then you can also make penalty-free withdrawals, but you’ll owe tax on those distributions.

If you are still working and under the age of 59 ½, you generally cannot make a withdrawal from your 401(k) plan unless your situation counts as a hardship withdrawal (e.g., you need to pay for medical or higher education costs) and your plan allows for such distributions. In these cases, you’ll pay ordinary income tax and a 10% penalty on the money. The 10% penalty is waived in specific circumstances (e.g., if you’re disabled or have medical bills that exceed 7.5% of your adjusted gross income). Further, the 2020 CARES Act allows investors who have been affected by Covid-19 to take withdrawals from their accounts without penalty, though they will still owe taxes.

If you are under the age of 59 ½ and have left your employer, you may pull your money from your former employer’s 401(k) without having to demonstrate hardship circumstances. You will still have to pay taxes and a 10% penalty unless you roll that money into an IRA or your new employer’s 401(k).

Both Roth and traditional IRAs offer tax-advantaged growth of money. The biggest difference between them comes down to at which point you pay taxes on the money.

You contribute to a Roth IRA using after-tax money, and you can’t deduct the contribution from your taxable income. However, when you withdraw the money in retirement, it’s tax-free, which means that if you think your tax bracket will be higher in retirement than it is now, you might lean towards contributing to a Roth IRA. Take a look at the eligibility rules to see if you qualify:

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With a traditional IRA, you may be eligible to deduct your contribution from your adjusted gross income if your income is below certain limits. This means you won’t pay tax on it now, but when you can withdraw money from it at the age of 59 ½ or older, you will pay income taxes on the amount withdrawn. So, if you think your tax bracket may be lower in retirement than it is now, a traditional deductible IRA may serve you better. Below are the eligibility rules for a traditional IRA deduction.

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