The changing economy hasn’t been good to many workers. Jobs have changed or even gone away along with pensions and retirement benefits. Just ask the estimated 13,000 people who will lose their job at American Airlines as it restructures.
The fact of life is America’s corporations are changing as they struggle to compete in a global market. Fewer are offering benefits that were so popular with our parents and grandparents. Instead of companies taking care of employees, employees now have to take care of themselves.
Workers today can expect to:
- Save for their own retirement instead of having a pension to rely on
- Pay more for their own health care as companies pick up less of the insurance premium and out-of-pocket expenses
- Manage their own retirement plan through a 401k instead of relying on a defined benefit plan (pension)
- Pay for more of their medical costs in retirement as companies pay fewer retiree health benefits
American Airlines recently became the latest company to cut worker benefits. It has told employees that it wants to do away with its pension plan and only offer employees a 401k.
- For those employees who are in the 401k now and will lose their job, there is a silver lining — they no longer have to participate in the American 401k plan. Any employee leaving a company that has a 401k can roll it over into an Individual Retirement Account (IRA). The benefits being:
- Lower investment fees — 401ks can be one of the most expensive retirement plans available. The balances can be invested in lower cost investment choices and not be subject to administrative fees.
- More investment choices — Having an IRA opens a world of possibilities in where to invest money for retirement. The 401k typically has limited choices.
- Allow a Roth Conversion — Rolling a 401k into an IRA allows for balances to be converted into a Roth IRA. This would allow future growth and retirement withdrawals to be tax free in return for paying the income tax now on the current balance, which should mean a total lower tax than in retirement. And now there is no longer an income limit to be eligible to convert.
- More flexibility in beneficiaries — An IRA allows more options for who the money will be passed on to at death and opportunities to delay income taxes to the beneficiary.
Contact a CFP for help with IRA rollovers, the rules and managing retirement plans.