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401(k) Plans

401(k) Plans Hilton Head Island, SC

The primary purpose of a 401(k) plan is to help employees save for retirement.

401(k) plans are named after the section of the Internal Revenue Code that governs them. 401(k) plans are sometimes also called "defined contribution plans."

Our firm has clients across the United States, but our Hilton Head Island, SC office makes it simple for individuals near Savannah, GA and Charleston, GA to understand and optimize their 401(k) plans. 

How Does a 401(k) Work?

Employees who participate in a 401(k) plan make contributions to their account from their paychecks. The money that is contributed to a 401(k) plan is not subject to federal or state income taxes.

The money in a 401(k) plan grows tax-deferred. This means that employees do not have to pay taxes on the money in their account until they withdraw it.

Most employers will contribute to an employee's 401(k) account which makes this employee benefit highly valued. 

Some 401(k) plans offer a feature called a Roth 401(k). With a Roth 401(k), employees make contributions with after-tax dollars. Not only does the money in the Roth 401(k) plan grow tax deferred, but also that the money in their account can be withdrawn tax-free when they retire.

Employees can usually choose how their 401(k) contributions will be invested. The most common investment choices for 401(k) plans are mutual funds. Most 401(k) plans now offer Target Date Retirement funds which enable the participant to select a fund which closely corresponds to their planned retirement date. The investment allocation in Target Date Retirement funds will periodically adjust the mix of stocks, bonds, and cash to a more conservative model as the participant moves closer to the selected retirement date.  

Leaving Your 401(k) with Your Previous Employer's Plan

Leaving your 401(k) with your previous employer can have pros and cons. On the one hand, you may be comfortable with the investment options and fund choices offered by your old plan. You may also be familiar with the people who manage your account and the customer service representatives who help you with any questions or problems.

On the other hand, there may be advantages to rolling over your 401(k) to a new employer's plan or to an IRA. For example, you may have more investment choices with a new employer or in an IRA. You may also be able to get lower fees and better customer service.

Rolling Over Your 401(k) to an IRA

Here are a few things to consider before rolling over your 401(k) to an IRA.


-You may have more investment options with an IRA than with a 401(k).

-An IRA may offer more flexibility when it comes to withdrawals.

-You may be able to consolidate multiple retirement accounts by rolling them over into a single IRA.


-If you roll over your 401(k) to an IRA, you may not be able to take advantage of employer matching contributions.

-The fees associated with your investment options in an IRA may be higher than in the 401(k) plan

Rolling Over Your 401(k) into Your New Employer's Plan

When you switch jobs, one of the decisions you'll face is what to do with your 401(k). You can either leave the account with your old employer, roll it over into your new employer's plan, or take a distribution and pay taxes and penalties on the money.

If you're happy with your current investment choices and the fees you're paying, you may want to consider leaving your 401(k) where it is. However, if you're not satisfied with the investment choices or fees, rolling over into your new employer's plan may be a better option.

Cashing Out Your 401(k) Plan

There are pros and cons to cashing out your 401(k) plan. One of the main pros is that you will receive a lump sum of cash that you can use for any purpose. However, there are several drawbacks to cashing out your 401(k) plan as well.

One of the biggest drawbacks is that you will have to pay taxes on the amount that you withdraw. Additionally, you may also be subject to a 10% early withdrawal penalty if you are under the age of 59 ½.

Another downside to cashing out your 401(k) plan is that you could miss out on potential growth. The money in your 401(k) plan has the potential to grow over time through investments. If you cash out your 401(k) plan, you will no longer have this opportunity for growth.


There are a lot of factors to consider when deciding what to do with an old 401(k) plan. A certified financial planner from Liberty Wealth Management can help you weigh your options and make the best decision for your unique situation. Working with a qualified professional can give you peace of mind that your finances are in good hands. Get in touch with us today!

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