1. Keep Your Retirement Savings on Track.
[Note to financial professional: Please refer to slide.]
Content contained herein is not intended to serve as impartial investment or fiduciary advice. The content has been developed by Capital Group, which receives fees for managing, distributing and/or servicing its investments.
Investments are not FDIC- insured, nor are they deposits of or guaranteed by a bank or any other entity, so they may lose value.
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2. Making an informed decision about your retirement savings is one of the most important things you can do for yourself when you change jobs.
By investing in your employer’s retirement plan, you’re already doing something great for yourself: you’re saving for retirement. That’s what your employer’s retirement plan is all about.
But what happens when you leave the company? If you’re moving to a new employer or retiring, you’re at an important crossroads: you need to decide what you’re going to do with the money you’ve invested so far.
I’m [financial professional’s name] from [firm name] and I’m the financial professional for your retirement plan here at [employer’s name]. Your employer has invited me here today to talk about what you can do with your retirement account balance when you’re retiring or changing jobs. So, whether you’re 27 and changing jobs or 67 and about to retire, you’ll find this information useful.
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3. A recent study found that the average worker holds about 12 jobs between ages 18 and 48.
Figuring out what to do with your retirement account balance is a big decision, and one that is faced more often by those in today’s workforce. [Note to financial professional: Read slide.] Because it’s likely that you may have several jobs throughout your career, it becomes more and more important to ensure that you understand how to keep your retirement savings moving forward as you transition between employers.
When you leave an employer, you basically have four choices: roll your money into an IRA, stay in your former employer’s retirement plan, move your money into your new employer’s plan or cash out your balance altogether and pay whatever taxes and penalties may apply.
Making the choice that’s right for you is a personal decision that will be driven by your particular situation and a close analysis of the pros and cons of each option.
Let’s take a look at these choices.
Bureau of Labor Statistics, March Study analyzed only people born between 1957 and 1964.
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4. Let’s start with your first option: rolling the balance from your retirement plan into an individual retirement account, or “IRA.”
A major advantage of rolling over your retirement plan balance into an IRA is potential investment flexibility. IRAs generally offer you a greater selection of funds to choose from than a retirement plan. Also, an IRA is often more responsive to your wishes. For example, you have greater control over when you’d like to take withdrawals; with a retirement plan, you have to adhere to plan rules and other decisions made by the plan sponsor. If you need to take required minimum distributions (called RMDs) and you have more than one IRA, you can decide to take the RMD from one account or spread it across all of your accounts.
That said, keep in mind that fees and expenses may be higher in an IRA because of the lower institutional pricing that many plans have access to. Also, generally, IRA assets have less protection from creditors than qualified plan assets.
There are two primary types of IRAs: a traditional IRA and a Roth IRA. Each type has its own rules and benefits. If you’d like to learn more about these IRAs, please see me after this presentation. You can roll your money directly into a traditional IRA or a Roth IRA. If you have Roth 401(k) or Roth 403(b) assets, they can only be rolled into a Roth IRA (this is not a taxable event).
A rollover into a traditional IRA is a non-taxable event that allows your money the opportunity to continue growing on a tax-deferred basis. You’ll have to pay taxes when you finally take distributions. A rollover of pretax money into a Roth IRA is a taxable event at the time of the rollover, but the subsequent earnings will not be taxed when a qualified withdrawal is taken.
If you have an outstanding loan on your retirement account, please note that the loan amount can’t be rolled into an IRA. [Note to financial professional: If participants have questions regarding outstanding loan balances and the IRA rollover option, please explain that they may be able to roll over their account balance into an IRA, but the loan balance itself can’t be rolled into this account type.]
Roll.
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5. Stay.
Let’s now consider your second option: Keeping your money in your former employer’s plan, if the plan allows it.
Leaving your money in your former employer’s plan will keep it away from the taxman … at least until you withdraw it at retirement.
Also, you can remain in the investments that you already know and your former employer remains responsible for monitoring the investment options available to you.
If you decide to stay in your old plan, keep in mind that you cannot make additional contributions, and you must follow the old plan’s rules for making exchanges and withdrawals. Also, if you have an outstanding loan balance, you’ll want to see if your former employer’s plan will accept loan repayments that are not made through payroll deductions.
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6. Stay. Balances under $1,000 may be cashed out.
Balances between $1,000 and $5,000 may be rolled over into an IRA.
If you choose to keep your money in your former employer’s plan, you should be aware of a few rules.
If your vested balance is $1,000 or less, you may be automatically cashed out. If you’re cashed out, the balance will be subject to taxes and possible penalties for early withdrawals.
If your vested balance is more than $1,000 but less than or equal to $5,000, your old employer may automatically roll your retirement account into an IRA of their choosing.
[Financial professional note: If the plan allows Roth contributions, please add the following:] If you’ve made Roth after-tax contributions, the Roth portion of your account balance will be rolled into a Roth IRA; the non-Roth portion will be rolled into a traditional IRA.
Therefore, even if you’ve decided to stay in the plan, your former employer can make a different decision for you. Be sure to check with your employer to see what plan rules apply if you leave your money in the plan.
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7. Here’s your third option when leaving your employer: Moving your retirement plan balance into your new employer’s plan. Of course, this is an option only if your new employer’s plan allows such a move.
Moving your account balance to your new employer’s plan can help you consolidate your retirement savings in one place.
Like the previous options we’ve discussed, moving your before-tax account balance into an employer-sponsored plan keeps it away from the taxman — at least until you withdraw the money at retirement.
Before you move your account balance into a new employer’s plan, however, keep in mind that the new plan may offer fewer investment options than your former employer’s plan or an IRA. There may also be plan-specific rules, such as a waiting period before you may move money to the plan, how often you can change your investment options, and withdrawal restrictions. If you have an outstanding loan with your current retirement plan, you’ll want to check with your new employer to see if the loan can be rolled into the new plan as well.
[Financial professional note: If the plan allows Roth after-tax contributions, please add the following:] Note that even though your new employer’s plan may accept Roth contributions, not every plan accepts rollovers of Roth balances from another plan.
Move.
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Now, you do have a fourth option when leaving your employer’s plan: Cashing out. While cashing out may be appropriate in certain situations (e.g. you have an immediate financial need), keep in mind that you may be subject to substantial taxes and penalties.
The following taxes and penalties may be applied to your pretax retirement savings withdrawal:
20% of your balance will be withheld at the time of your distribution as federal income tax withholding. There may also be state income tax withholding.
Then, when you file your taxes for the year, the amount withheld will be applied against your total income tax liability. This is based on your personal tax rate — so you may owe more than was withheld.
Finally, a 10% federal income tax penalty may be assessed if you separate from service prior to turning 55 years old.
These taxes and penalties could take a big bite out of your overall account balance.
Pay.
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9. Consider the Cost of Cashing Out.
But the financial impact of a cash distribution doesn’t stop there — the amount you’ll have each month at retirement could be seriously affected.
[Note to financial professional: Refer to chart on slide.]
For example, let’s assume that Jim and Rachel both make the same salary and save 8% for retirement each year. After five years of employment, they both experience a job change. Jim decides to cash out and spend his entire account balance of approximately $22,000, whereas Rachel decides to roll over her balance into an IRA. They then continue saving at the same rate until they retire, after 40 years of employment.
Look at the difference in their monthly withdrawals at retirement. Jim’s decision to cash out way back at year 5 has cost him nearly $1,200 per month at retirement.
Now there may be some situations in which you really need the cash. If this is the case, consider withdrawing only what you absolutely need. This can help reduce or manage your tax consequences and the impact on your retirement savings.
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10. So, what should you do. Roll. Stay. Move. Pay
So, what should you do? Roll? Stay? Move? Pay? To help you make this important decision, it might be a good idea to check out a tool located on our website.
Visit americanfundsretirement.com and type ”SpendOrSave” in the search box.
The “Spend it or save it calculator” can give you a realistic example of how taxes and penalties may impact a full distribution of your balance, versus how your investments may continue growing in a tax-deferred account.
Simply plug in your information –- such as your current retirement plan balance, current age and other factors –- and let the calculator do the math. I think you’ll find it an eye-opening experience.
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11. The Choice Is Yours Roll: Roll over to an IRA.
Stay: Remain in the plan.
Move: Transfer to your new plan.
Pay: Cash out of the plan.
We’ve spent time talking about the four choices you’ll have when you leave your employer: roll into a traditional or Roth IRA, stay in your former employer’s plan, move your money into your new employer’s retirement plan, or take a distribution and pay the appropriate taxes and penalties.
As you’re thinking about what to do, keep in mind that you may want to keep as much as possible invested in tax-deferred accounts in order to accumulate assets for your retirement.
No matter what you decide to do, unless you are planning to retire now, you can look for opportunities to continue to invest for retirement — either through a plan at work or on your own.
I’m also available to assist you if you’re not sure which option is right for you. Jot down your questions, and call me at [xxx/xxx-xxxx] or me at Remember, you don’t have to make this important decision alone.
Whatever your decision, I’d love to meet with you and get started on more fully developing your financial plan.
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12. American Funds Is a Key Provider for Your Retirement Plan
Since 1931, American Funds has invested with a long-term focus and attention to risk.
Nearly half of the 56 million investor accounts in the American Funds are retirement accounts.
Your employer has selected a key provider for your retirement plan — American Funds from Capital Group.
There are 56 million investor accounts in the American Funds, and nearly half of those are retirement accounts.
Since 1931, American Funds has invested with a long-term focus and attention to risk — both are key to effective retirement planning.
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13. Investors should carefully consider investment objectives, risks, charges and expenses. This and other important information is contained in the fund prospectuses and summary prospectuses, which can be obtained from a financial professional and should be read carefully before investing.
All hypothetical examples assume an 8% average annual return compounded monthly and an annual withdrawal rate of 4% after the accumulation period indicated. These are point-in-time views and as such do not take into account any growth or loss during retirement. Without investment growth/loss during retirement, a 4% annual withdrawal rate would deplete retirement savings in 25 years. Examples are for illustrative purposes only and do not reflect the results of any particular investment, which will fluctuate with market conditions, or taxes that may be owed on tax-deferred contributions, including the 10% penalty for withdrawals taken before age 59½. Regular investing does not ensure a profit or protect against loss in a declining market.
[Note to financial professional: Refer to slide. Give your audience time to read important disclosure.]
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14. [Note to financial professionals: Thank employees for attending and let them know how to get in touch with you if they need further assistance.]
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