How to Capitalize on Your 401K After Retirement

Table of Contents:

  1. Rollover Your 401K into a Traditional IRA
  2. Bank on Government Bonds
  3. Open a Savings Account

If you’re over 59 ½ years of age and preparing for retirement, you have the ability to withdraw funds from your 401K without suffering a 10% penalty.* Before you decide to do so, it’s important to carefully consider your options, and speak with your investment advisor. For many people, a 401K account is the best long-term option for tax-deferred investments.

Unrestricted access to investment assets may be appealing to some early retirees. If you wish to do so, there are ways to put your 401K funds to work in other investment vehicles.

Here are 3 hassle-free financial tips that can help keep your capital working for you while you hit the links or unwind poolside.

401k planning
Capitalize on your 401(k)

Rollover Your 401K into a Traditional IRA

A Traditional IRA (Individual Retirement Account) allows retirees to continue the tax-deferred financial growth offered by a 401K without taxation on the rollover amount. It also shields your earnings from creditors and allows your beneficiaries to inherit your assets after death.

Though regulations force you to make withdrawals after your 70th birthday, alternative plans without age restrictions (like a Roth IRA) are not tax deductible and often contain a sizable tax on assets rolled over from employer-provided retirement plans. Remember that pulling money out of tax-deferred accounts counts as income, and you will be expected to pay it on your next tax bill.

If the prospect of mandatory withdrawals is something you wish to avoid, you can convert your plan into a Roth IRA before the deadline, which can lower taxes on inheritances and put more cash in your family members’ pockets.

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Bank on Government Bonds

Investors seeking low-risk opportunities with predictable payouts can invest in treasury bonds. Created to aid government spending without public taxation, “T-bonds” can mature up to 30 years and are backed by the U.S. Government’s “full faith and credit,” which is fallible only in cases of bankruptcy or coup.**

American citizens are also eligible to purchase bonds from foreign nations, which may have higher interest rates than the domestic variety, but are far more susceptible to political influence and financial instability. Foreign bonds are not backed by the United States government, and are intended for highly sophisticated investors with a high risk tolerance – the ability to lose a lot of money without suffering financial hardship. Before making any investment in bonds, seek the help of a financial advisor.

Open a Savings Account

If you find it necessary to withdraw money from your 401K, for whatever reason, you should put the money into an interest-bearing savings account while you are not using it. Stashing your money away in a personal savings account allows penalty-free access to funds without fear of institutional insolvency, since all domestic deposits are insured by the Federal Deposit Insurance Corporation up to $250,000 per individual account owner.***

A broad range of high-interest accounts also steer clear of balance caps and service fees, which transform your sedentary capital into a steady stream of profit. Unfortunately, taxation of personal income is a necessary evil for any investment, but avoiding labor and bypassing costs is the cleverest way to subsidize your spare time.

* Anonymous, (June, 2019). 401(k) Resource Guide – Plan Participants – General Distribution Rules. Internal Revenue Service. Retrieved September, 2019
** Conley, Paul, (January, 2019). Treasuries Are the Safest Investment. The Balance. Retrieved September, 2019
*** Anonymous, (June, 2019). How Are My Deposit Accounts Insured by the FDIC?. Federal Deposit Insurance Corporation. Retrieved September, 2019