Consolidating 401k loans

30 Jul

Among the advantages: you receive guaranteed income for the rest of your life; you don't have to worry about how the source of that income is invested; and if you buy an annuity with survivor benefits, your spouse can receive a portion of your payments after you die.

The key drawbacks are that annuities are not inflation-adjusted; you may be able to generate a higher return investing on your own or with an adviser; and if you die soon after retiring, the insurance company, not your heirs, is more likely to benefit from the bulk of your savings.

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Lump-sum distribution If you need a wad of cash right away, this option will serve that purpose.

There are two key downsides: you forfeit the benefits of tax-deferred compounding by cashing out all at once; and you'll have to pay income taxes on your distribution for the tax year in which you take it, which can be a big bite out of your nest egg all at once.

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However, if you have a financial adviser helping you with your IRA, you may be able to gain access to institutional shares that way.

If you have a string of retirement accounts when you leave the work force, you might be better served by consolidating your accounts into an IRA for two reasons: a consolidated account may be easier to manage in terms of administration and efficiency; and the larger your IRA account balance, the better your chances of qualifying for discounts on sales charges (a.k.a. Also, in a 401(k) you have less control over the governance of your account, since you are subject to rule changes made by the plan sponsor within the confines of federal law.

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