When clients retire or lose jobs, they often feel pressure to make decisions about distributions from their 401(k)s. Tell them to relax. There is no time pressure and you will help them evaluate investment options, income needs, and tax impacts in due time.
The key to making calm, rational decisions can be a "no-impact" IRA transfer.
You facilitate it by:
- Directly transfer 100 percent of the plan money into a Traditional IRA; and
- Invest all of the money temporarily in a money market fund. There is no current tax impact or IRS withholding requirement on a full direct transfer, and the client will not incur transaction charges in the money market fund. Over weeks or months, you can methodically help the client evaluate income withdrawals, annuity payouts, investment choices, or Roth conversions. The no-impact transfer is the best way to avoid rushed decisions that are irrevocable and create unnecessary costs and taxes.
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