What should I do with my 401(k) and pension as I plan to move abroad?
I have both a 401(k) and pension plan provided by my employer. I am planning to move abroad and I am not sure what to do with these funds. I imagine I can rollover my 401(k) to an IRA plan with the institution of my choosing, but I am not sure if I should also move money from my pension plan or leave it where it is. While my pension is insured at 104%, I am worried that in 15-20 years, my company may close and my pension plan would go along with it. What would you advise?
More often than not it makes sense to move the 401k to an IRA that you fully control. 401ks are often loaded with excess fees that you can avoid by having the funds in an IRA. Additionally, a 401k will generally have very limited investment choices where your IRA has a whole world of choices including great low cost investments.
With that said, there are a lot of advisors that will recommend that rollover but then put your money into high fee stuff. Your best move is either to create a portfolio based on your needs and risks that is made up of low cost index funds and then make sure it is rebalanced regularly or work with a fee only fiduciary advisor that can help you with that process.
With regard to the pension, its a tougher question. Pensions generally have more favorable return numbers built in than what you will be able to achieve on your own. Additionally you are passing the risk of the investments to your company rather than taking them on yourself. If the markets dont do well, the pension still has to abide by the rules and numbers it has promised. On the other hand the risk of the company going bankrupt could present some headaches.
Similarly to your bank accounts, Pensions are insured by an organization (similar to FDIC) called the Pension Benefit Guaranty Corporation (PBGC). However there is a limit to how much the PBGC will ensure and the process of getting those funds can be a little burdensome. I would generally say keep the pension where it is, especially if it is governmental organization or a large stable company. If you are worried about the company shutting its doors, its a tougher question and a risk worth looking into a bit further.
I hope this helps. Good luck.
Whether you are or are not moving abroad should have no impact on your decision. Don't do a rollover since those have severe restrictions and could trigger an audit. If you wish, you can transfer your 401(k) to two IRAs; a traditional IRA for any before-tax money in your 401(k) and a Roth IRA for any after-tax money in your 401(k). However, if you are happy with your choices in the 401(k), stick with it. Unless you are invested in company stock, the company's bankruptcy should not affect the listed mutual-fund/exchange-traded fund shares in your 401(k) which should be insured by federal law. If they aren't insured, you can separately purchase insurance from various carriers including Lloyd's of London.
I love that you are getting the opportunity to live abroad!!!! Hope you are going somewhere fun.
Couple things to add to the mix here....Check to see if you will have online access to your accounts abroad. May sound simple, but I have several clients who travel heavily abroad, and have had different success with different investments firms and in different companies loggin in from abroad. Being able to access your account and keep them working for you is an important piece.
As for the pension, sounds like you are good amount of time away from retiring. You could benefit from sittind down with a trusted fiduciary financial planner to help map out what is the best way to maximize you pension benefits.
Here is a post with a bit more on that topic.
Best of luck,
DAVID RAE, CFP®, AIF® is a Los Angeles-based fiduciary financial planner with DRM Wealth Management, a regular contributor to Advocate Magazine, Huffington Post, Investopedia not to mention numerous TV appearances. He helps smart people across the USA get on track for their financial goals. For more information visit his website at www.davidraefp.com or the Financial Planner LA Blog.
You have several options. In many cases, your employer's 401(k) plan may allow you to leave the funds where they currently reside. And, as you mention, you can also roll them into an IRA once you terminate your employment. Factors that go into the decision-making include: the array of investment choices in the plan, who will monitor your account if you cannot, and the costs associated, just to name a few. As for the pension, it is often advisable to leave that as a pension benefit, provided the level of funding is adequate. You should be receiving annual statements as to the financial status of the pension plan and that will show the amount of funding for the plan. If the plan has Pension Benefit Guaranty Corporation coverage, then that provides a bit of extra assurance for the future. Given the number of factors to consider and the nature of your upcoming changes, it would be best to meet with someone in person to review your unique situation. Best of luck!
You need to find out if your IRA broker will allow you to maintain the account while living abroad. Unfortunately, not all financial companies are accommodative with non-US based clients even if they are US citizens.
There are pros and cons for keeping money in either 401k or IRA. Due to their size, some 401k plans provide access to lower-fee index funds. Some plans even provide free financial training and consultation. Under certain circumstances, you can withdraw money from your 401k without penalty before you reach 59 1/2.
In your situation, there are a lot of moving parts. it will make sense to speak with a financial planner who can assess your options in more depth.