Retirement brings a wealth of personal opportunities. It’s a chance to spend time with children and grandchildren, travel the world, and pick up hobbies you never had time for while working—like pickleball or golf. However, living in the beautiful Napa Valley is expensive, and a successful, comfortable, retirement requires diligent financial planning. This often starts with what you plan to do with your 401(k) after retirement. At Jacobson Wealth Management, we offer retirement planning, investment strategy planning, and many account support services—including 401(k) rollovers, IRAs, Roth IRAs, SEPs and much more—so that you can go into your retirement confidently and with purpose. Let’s look at some typical options for your 401(k) once you retire:
1) Keep Your Money in Your 401(k)
If you’re a retiree with a 401(k) balance of $5,000+ at retirement, you can usually choose to leave your money in your former employer’s plan. Your account will still grow tax-deferred, but you cannot contribute any additional money once you are no longer working. Before making this decision, it's important to consider the performance of your current plan and ensure that its underlying investment strategy aligns with your own personal goals.
2) Transfer Your 401(k) to an IRA or Roth IRA
For retirees who want more investment flexibility and a more personalized approach to managing assets, rolling over your 401(k) to an IRA or Roth IRA is a smart move. There are two different ways to do this:
a. Direct Rollover (recommended)
In a direct rollover, your employer transfers your 401(k) assets directly to your individual retirement account (IRA). This method avoids taxes, penalties, and enables you to stay invested throughout the process. There are no limits on the number of direct transfers you can execute each year.
b. 60-Day Rollover (not typically recommended)
After retiring, you can also have your 401(k) distributed directly to you. If you invest your retirement plan into an IRA within 60 days, you will not be subject to taxes or penalties. Importantly, you are limited to one 60-day transfer per account per year. If you fail to deposit the funds within 60 days of receiving your 401(k) payout, your tax-deferred status is lost, and the entire transfer may be added to your taxable income.
Watch out for withholding: if you elect the 60-Day Rollover option, there may be an amount withheld for tax purposes (usually 20%). This means you will only receive a portion of the rollover on the distributed check. Any portion of the rollover not deposited into your IRA will be classified as a distribution. This applies to the withheld amount.
Because of the risk of taxes and penalties, there are limited instances where a 60-day rollover is advised.
3) Withdraw a Lump Sum from Your 401(k)
Another option for those retiring later in life, or who have sizeable retirement account balances, is lump-sum withdrawal. You can opt to extract all or part of your 401(k) after retirement in cash. Because these funds are taxable as income, this choice typically only makes sense for those who need immediate access to all or most of their retirement plan assets. Please note that if you are under 59 ½, a 10% early withdrawal penalty may apply. Money withdrawn from a 401(k) is taxed as ordinary income, and as a Napa resident you will pay an additional 1% - 12.3% for California income tax.
This option provides immediate access to your money but requires careful consideration of the tax implications. To be sure you understand the impact of this decision, contact the local professionals at Jacobson Wealth Management for a consultation.
4) Convert Your 401(k) into an Annuity
Converting your 401(k) into an annuity turns the entire lump sum into a consistent stream of monthly payments. While this guarantees regular income, it might not be suitable for everyone. Before deciding on a plan like this, you must consider the potential consequences, such as losing access to your principal should you need it in an emergency or receiving less than your principal amount if you pass away too soon. However, it provides reliable income for life, protection from market volatility, and simplifies your financial management, eliminating the need for ongoing investment decisions and making it easier to enjoy our beautiful Valley without stress.
Get Professional Guidance
There are several ways to manage your 401(k) in retirement to meet your financial goals that shape your post-workforce years. At Jacobson Wealth Management, our independent status enables us to explore a wide range of investment options and strategies until we find the best fit for you. Our commitment to the Napa community, and our status as a local, family-owned firm ensures that we are accountable to you and your goals. Together, we will develop a strategy that aligns with your retirement goals to help you navigate your new journey with confidence and clarity. Contact Jacobson Wealth Management today to schedule your personalized retirement planning consultation to ensure your golden years in Napa are secure and fulfilling.