If you are like most Lockheedians saving for retirement using your 401k, you may be planning on rolling your 401k over to your Individual Retirement Account (IRA) once you have retired. This can provide many benefits but there are some things you need to know before you roll to avoid making some common mistakes. We have listed three below. If you would like to learn more, please sign up for our Free Report titled Retire with Confidence: The Top 4 Things You Can Do Now to Maximize your Lockheed Retirement that has some great tips for those getting ready to retire. Happy Rolling!

  • MISTAKE # 1: REQUESTING A ROLLOVER VERSUS A DIRECT ROLLOVER… YES, THERE IS A DIFFERENCE.
    • A Rollover is defined as a non-taxable transfer of your 401k to another qualified account. In this process, the check is made payable to the 401k owner and then mailed to them. The owner would then have 60 days to deposit this into their qualified account or it would be a taxable event. The issue with this is that when you have the check made payable to you instead of an institution, there is a mandatory 20% tax withholding. This means that you would receive a check for 80% of your balance. And, If you don’t have the amount withheld set aside in cash to deposit into your IRA, then the amount withheld for taxes would be subject to taxation. So what’s the fix… simply request a Direct Rollover and have the check made payable to your IRA custodian. When you do this, there is no 20% tax withholding. Problem solved!
  • MISTAKE # 2: DEPOSITING YOUR POST TAX CONTRIBUTION ROLLOVER CHECK INTO YOUR TRADITIONAL IRA.
    • This mistake can cost you thousands of dollars in taxes that could have been avoided. Historically this was the only option that you had. Now the rules have changed and you can deposit the post tax dollars into a Roth IRA. The benefit of this is that you will not pay any tax on the growth of the money after holding it for 5 years in the Roth IRA account. You read that correctly… no tax on the earnings and gains when you roll it and none moving forward. How sweet it is!
  • MISTAKE # 3: NOT USING NET UNREALIZED APPRECIATION WHEN ROLLING COMPANY STOCK.
    • If you are a career Lockheedian, you probably have purchased stock inside your 401k plan over the years. Well, you may not have known that Lockheed was keeping track of the price of your stock when you purchased it. This strategy allows you to distribute the stock to your non-qualified account instead of to your IRA when you retire. In doing so, the stock is taxed as ordinary income up to the price you paid for it (basis) but the gain (amount above basis) is taxed at the more favorable long term capital gain tax rates ranging from 0-20%. Lower tax rates are a beautiful thing! Be sure and check with your tax professional before making this choice.

Now that you know how to avoid these key mistakes, you don’t have to worry about messing up your rollover.

For more tips like these, click here to sign up for our weekly email blog newsletter. If you would like to get better educated on Lockheed retirement strategies, click here to download our Free Report titled Retire with Confidence: The Top 4 Things You Can Do Now to Maximize your Lockheed Retirement. And, if you want to have face time with a Lockheed Retirement Specialist², you can click here to schedule an appointment, click here to sign up for our Lockheed Retirement Workshop or click here to just give us a call (817) 210-3444.

Be sure and check back next week for more incredibly valuable information. Cheers!

Disclosures*

Financial Planning and Investment Advisory offered by SWMG, LLC a Registered Investment Advisor.

Lockheed Retirement Specialist is not an official title or professional designation nor is it conferred by Lockheed Martin on any individual or company.

Our Complementary consultation and free report are for informational purposes only and provided free without any obligation to utilize or retain our investment advisory services.

SMWG, LLC is not affiliated with or endorsed by Lockheed Martin Corporation. Our expertise comes from working with LMT employees for several years and helping them to retire with confidence.

Investing involves the risk of loss, including loss of principal. Past performance does not guarantee future results. Investment products are not FDIC insured, have no bank guarantee, and may gain or lose value. Different types of investments involve varying degrees of risk, and there can be no assurance that any specific investment will be profitable for a client’s investment portfolio.