Bruce is a 60-year-old engineer at a well-respected engineering firm and is thinking about retiring after 30+ years at the company. Bruce has been meeting with Sarver Vrooman Wealth Advisors (SVWA) for a number of years and understands that he has sufficient assets to retire but is still unsure exactly how the process works, changing from a 401(k) plan with an ESOP component to a managed account in retirement. Bruce knows he has a 401(k) that can be transferred shortly after he retires, along with the ESOP component at a later date.
After speaking with some friends and colleagues around the office, Bruce decides to pull the trigger and retire. Here are the steps that Sarver Vrooman Wealth Advisors will take Bruce through to help him rollover both accounts into an Individual Retirement Account (IRA).
- Bruce calls Sarver Vrooman Wealth Advisors to inform them that he has decided to retire in the near future. They schedule a meeting, before Bruce makes his announcement, to ensure his retirement plan is still on track. During the meeting, the Sarver Vrooman team will discuss with Bruce about establishing an IRA, having sufficient liquidity on hand, and set up a time for him to come in shortly after he retires.
- Bruce is comfortable and decides that now is the time to officially retire. He may take a vacation to the Bahamas to celebrate the milestone. Shortly after he returns home, he heads in to see the Sarver Vrooman team and discuss the transfer process.
- Bruce is welcomed into the Sarver Vrooman conference room by all three (3) Advisors and their Chief Operations Officer, Jessica. In this meeting, Operations is the star of the show. Jessica coordinates a conference call with the 401(k) and ESOP Custodian and after Bruce answers a few short verification questions, the proceedings begin.
- Jessica instructs the 401(k) and ESOP Custodian that this will be a direct rollover, which prevents any tax implications.*The 401(k) and ESOP Custodian acknowledges that the check will be issued to Well Fargo Clearing Services for the benefit of Bruce. This is important because it ensures the transfer does not cause any tax implications. The 401(k) and ESOP Custodian confirms the instructions and mails the check(s) to Bruce. Typically, the 401(k) component will roll over first and the ESOP portion at a later date.
- Once received, Bruce then drops the check(s) off with Sarver Vrooman Wealth Advisors and he once again meets with the Advisor team to confirm the recommended investment allocation in Bruce’s, now, newly funded IRA. He also meets with the Operations Team to confirm he is set to receive his monthly distributions, deposited directly into his checking account, much like the paycheck he used to receive.
- Bruce has Sarver Vrooman Wealth Advisors withhold taxes from his IRA distributions, so he doesn’t get a big surprise from Uncle Sam come tax time. Bruce also sets up on-demand
distributions, this ensures that he has access to his money as needed in case he decides to jet off to the Bahamas again.
One year later, our goal for Bruce is to be happily retired, and work is a distant memory. He has met with the Sarver Vrooman team four (4) times to get updates on his investment portfolio, his overall wealth plan, and to ensure that he is comfortable with the distribution amounts being deposited into his account. He may also have attended several of the SVWA educational client events where he bumped into a few fellow alumni from his well-respected engineering firm. Our goal is that Bruce’s investment plan has helped give him the confidence that he will not outlive his money. He has enjoyed the ESOP participation over the years, but now he is transitioning into the next phase of life. Fast forward, Bruce’s one-year anniversary is up, and it’s time to move the remaining balance of his ESOP stock. Bruce sets up another meeting with the Sarver Vrooman Wealth Advisors team to start the transfer proceedings once again, as the process is nearly identical to the transfer process for his 401(k).
We hope Bruce is relieved with how easy the Sarver Vrooman Wealth Advisors team made his transition from working to retirement. Moving forward, Bruce will continue to meet regularly with the team to help ensure he remains on the right path. If you are like Bruce and find yourself pondering about the timing of your retirement or are looking for a second opinion, Sarver Vrooman Wealth Advisors would be happy to set up a time to discuss your specific situation.
The solutions discussed may not be appropriate for your personal situation, even if it is similar to the example presented. Investors should make their own decisions based on their specific investment objectives and financial circumstances. It should not be assumed that the recommendations made in this situation achieved any of the goals mentioned. This example is hypothetical and does not represent any specific, investments or strategies.
Please keep in mind that rolling over your qualified employer sponsored retirement plan (QRP) assets to an IRA is just one option. You generally have four options for your QRP distribution: Roll over your assets into an Individual Retirement Account (IRA); Leave assets in your former QRP, if plan allows; Move assets to your new/existing QRP, if plan allows; Take a lump-sum distribution and pay the associated taxes.
Each of these options has advantages and disadvantages and the one that is best depends on your individual circumstances. When considering rolling over your assets from a QRP to an IRA, factors that should be considered and compared between QRPs and IRAs include fees and expenses, services offered, investment options, when you no longer owe the 10% additional tax for early or pre-59½ distributions, treatment of employer stock, when required minimum distributions begin and protection of assets from creditors and bankruptcy. Investing and maintaining assets in an IRA will generally involve higher costs than those associated with QRPs. You should consult with the plan administrator and a professional tax advisor before making any decisions regarding your retirement assets.
Advisory services are offered through Sarver Vrooman Wealth Advisors LLC, an SEC Investment Advisor.