Staying with the Plan

Your employer may give you the option of leaving your 401(k) assets in your plan after you stop working. If you’re happy with the investment choices the plan offers, this may be an attractive alternative. You won’t be able to make further contributions, but any earnings your investments produce will accumulate tax deferred. Again, you should consider the expense ratios of the funds in your employer’s plan when making this decision.

You may have a choice of ways to take income from your plan, such as systematic withdrawals or a lifetime annuity. Plans aren’t identical, though, so you’ll have to confirm which options are available. Whichever alternative you choose, the administrator that your employer designates to run the plan is responsible for handling your income payments and ensuring that the amount you receive after you turn 70½ meets the minimum distribution requirements. That’s a feature that appeals to people who would rather not manage those details or feel uncomfortable making financial decisions.

Despite the advantages, there are some potential drawbacks to staying with the plan:

• The management fees may be higher than with an individual retirement account (IRA)



• You may not be able to change your asset allocation or investment mix after you retire



• You may be required to begin taking income as soon as you retire rather than waiting, if you prefer, until you’re required to withdraw



• You may need to have accumulated more than $5,000 to be able to stay in the plan