Copper Financial (“CuFi”) Employer-Sponsored Retirement Plan Rollover Disclosure

Copper Financial (“CuFi”) Employer-Sponsored Retirement Plan Rollover Disclosure

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The decision to roll over assets in an employee-sponsored retirement plan (e.g., 401(k)) is very important as it is usually irreversible and varies depending on your personal situation and the rules of the employer’s plan.

Copper Financial (“CuFi”) provides the information below to help educate you on the choices available to you when you consider rolling over an employer-sponsored retirement plan. This information is provided for informational purposes and should not be viewed as an individual recommendation. The potential advantages and disadvantages discussed below are not intended to be an exhaustive list of all possibilities.

While neither CuFi nor its representatives make recommendations with respect to rolling over your assets in an employee-sponsored retirement plan, a CuFi representative can educate you on your choices so you can make an informed decision.

It is important to understand you may have different options for how to handle money in an employer-sponsored retirement plan. Your options may include:

  1. Roll over the assets into an IRA with CuFi or other IRA Trustee.
  2. Leave the assets in your former employer’s plan.
  3. Move the assets into a new employer’s plan.
  4. Take a cash distribution.

Not all options are available for every person or in every situation. It is important to understand your options when deciding what to do with money in an employer-sponsored retirement plan. Each option has its unique advantages and disadvantages which you should consider when making your decision.

ROLL OVER A 401(K) INTO AN IRA WITH CUFI OR OTHER IRA TRUSTEE

Advantages to rolling over your plan to CuFi or other IRA Trustee include:

  • Access to a financial professional who can provide personalized advice.
  • Investment options that are not limited to the selections made by the plan sponsor.
  • Access to services to plan for the decumulation of assets during retirement and investments products focused on retirement income, which have not typically been offered or available within employer-sponsored retirement plans.
  • IRAs offer certain exceptions not available in employer-sponsored plans to the early withdrawal penalty for certain types of withdrawals (e.g. first-time homebuyer, certain higher education expenses).

Disadvantages to rolling over a 401(k) to CuFi or another IRA Trustee include:

  • Account, product and/or transaction fees may be higher than those in an employer-sponsored plan.
  • Required Minimum Distributions (“RMDs”) must be taken if you are still employed and have reached the minimum age required by the IRS (I.e. age 72 unless you reach age 70 ½ prior to 12/31/19).
  • Loans are not available from an IRA.

LEAVE THE ASSETS IN YOUR FORMER EMPLOYER’S PLAN

This is an option that may not be available to you, as your former employer’s plan may impose both minimum balances if the participant is no longer an employee or may restrict participation in the plan to only current employees. In this scenario, you typically have a set time period after you leave employment to roll over your assets to a new employer’s plan or an IRA (such as with CuFi or other IRA Trustee). If you do not do this within the set time period, the plan may automatically terminate your participation and distribute the cash to you. This outcome should be avoided, as it typically would result in negative tax consequences. See the Take a Cash Distribution section below for additional details.

Advantages with keeping your funds in your former employer’s plan include:

  • Account, product and/or transaction fees may be lower than those in an IRA.
  • Loans may be available.
  • Early withdrawal penalties may be waived in certain circumstances.

Disadvantages to keeping the assets in your former employer’s plan include:

  • Limited to only the investment options selected by your former employer for inclusion in the plan.
  • Access to personalized investment advice may be limited.
  • Additional contributions are not usually permitted.
  • IRAs offer certain exceptions not available in employer-sponsored plans to the early withdrawal penalty for certain types of withdrawals (e.g. first-time homebuyer, certain higher education expenses).

Check with your former employer’s plan for more details.

MOVE THE ASSETS INTO A NEW EMPLOYER-SPONSORED PLAN

This option is not available to you if you do not take a position with a new employer, your new employer does not have a retirement plan, or the retirement plan of your new employer does not accept rollovers.

Advantages with rolling over the assets into a new employer’s plan include:

  • Account, product and/or transaction fees may be lower than those in an IRA.
  • Loans may be available.
  • If you are still working and meet the IRS-defined age (e.g. age 72 unless you reached age 70 ½ before 12/31/19) you will not be required to start taking Required Minimum Distributions if you maintain your funds in an employer-sponsored plan.

Disadvantages to rolling the assets to your new employer’s plan include:

  • Limited to only the investment options selected by your new employer to be included in the plan.
  • Access to personalized investment advice may be limited.
  • Additional contributions are not usually permitted.
  • Possible waiting period to move money into new plan.

Check with your former employer’s plan for more details.

TAKE A CASH DISTRIBUTION

This alternative should be avoided in most circumstances as the withdrawal may be subject to tax penalties. Specifically, you may be subject to a 10% early withdrawal penalty if you are under the age of 59 ½ (or age 55, if you turned age 55 in the calendar year you left employment). Further, you would lose the tax deferred growth opportunities available to assets invested in an employer-based retirement plan or IRA. If the contributions to your plan were made with pre-tax income, you most likely will have to include all withdrawn funds as ordinary income during the year in which you took the cash distribution, which increases the income tax you owe and could increase your marginal tax rate.

ADDITIONAL THINGS TO CONSIDER

EMPLOYER STOCK

In addition, special consideration should be taken with respect to any employer stock you may have been granted that has appreciated significantly in value when transferring in-kind to an IRA. Often, the dollar amount of the appreciation will be treated for tax purposes as ordinary income, which could significantly increase your tax liability for the year in which the transfer is made. In addition, it can be risky to have an investment portfolio that is highly concentrated in your former employer’s stock.

CREDITORS AND LEGAL JUDGMENTS PROTECTION

The laws governing how your retirement savings are protected in the event of bankruptcy or other legal judgments vary depending on both the account type and the state law. For example, federal law protects all assets within an employer plan from creditors while assets in IRAs are only protected from bankruptcy proceedings. State laws govern how IRAs are protected from legal judgments in non-bankruptcy legal proceedings (such as lawsuits). CuFi does not provide legal advice and you should talk to your lawyer for additional information.

CuFi, its financial advisors and other employees or independent contractors do not provide tax advice. You should consult a tax professional regarding your specific situation.