Should You Defer, Withdraw, or Roll Over Your Boeing 401(k)?
When leaving Boeing to work at another company, you will have to decide what to do with your Boeing 401(k). You can leave the funds at Boeing, withdraw them, or roll them over into another account. Making the wrong choice could cost you. But which is the right one?
To help answer that question, let’s take a look at the options.
Key Takeaways
When leaving Boeing, you can defer, withdraw, or roll over your 401(k), each with different implications for your retirement savings.
Withdrawing funds can result in significant taxes and penalties, while rolling over to an IRA or another 401(k) can preserve tax advantages.
IRAs often offer more investment options than employer 401(k) plans, allowing for greater customization of your portfolio.
Option #1: Deferring Your Boeing 401(k)
Deferring your Boeing 401(k) — leaving it at Boeing — can be a straightforward option for managing your retirement savings. This choice has both advantages and potential drawbacks, depending on your finances and goals.
Pros of Deferring Your 401(k)
1. Continued Tax-Deferred Growth:
One of the primary benefits of keeping your 401(k) with Boeing is the continued tax-deferred growth of your investments. This means that you do not pay taxes on the earnings until you withdraw the funds, typically at retirement. This can be useful if you expect to be in a lower tax bracket during retirement, thus potentially reducing your overall tax burden.
2. Less Effort Required
By leaving your 401(k) with Boeing, you avoid the paperwork and potential complications associated with rolling over your account. This can be particularly beneficial if you are satisfied with the plan's performance and the fees are reasonable.
3. Investment Options
Boeing’s 401(k) plan offers institutional-grade investment options that are not always available to individual investors. These options often have lower fees compared to retail investment products, which can enhance your portfolio's performance over time.
Cons of Deferring Your 401(k)
1. Limited Investment Choices
While the Boeing 401(k) has some great investment opportunities, your options may be more limited than they would be in other types of accounts. 401(k) plans typically offer a selection of funds pre-determined by the employer, which might not suit your specific investment preferences or risk tolerance.
2. Required Minimum Distributions (RMDs)
Once you reach age 73, you must start taking RMDs from your 401(k). These withdrawals are taxable and could push you into a higher tax bracket, depending on the size of your account and other income sources. Other types of retirement accounts do not have this requirement.
3. Potential Changes in Plan Terms
If Boeing changes the terms of its 401(k) plan — such as altering fee structures or investment options — your investment strategy may be impacted without your direct control. This can introduce uncertainty and requires you to stay informed about any plan modifications.
Considerations for Deferring Your 401(k)
Plan performance and fees: Evaluate the performance of your investments within Boeing’s plan and compare the fees to those of other potential retirement accounts, such as an IRA.
Future employment status: If you plan to retire soon, deferring your 401(k) might be convenient. However, if you are changing jobs, consider whether the new employer's plan offers better options.
Financial goals: Align your decision with your retirement goals, including your anticipated retirement age, income needs, and overall financial strategy.
Hear from Real Boeing Retirement Clients
Building a plan for family and generosity
Option #2: Withdrawing Your Boeing 401(k)
Withdrawing funds from your Boeing 401(k) can provide immediate access to your retirement savings, but it comes with significant tax implications and potential penalties. Here’s a look at the pros and cons of this option.
Pros of Withdrawing Your 401(k)
1. Immediate Access to Funds
One of the primary advantages of withdrawing your 401(k) is the immediate money it provides. This can be particularly useful if you need cash for expenses such as paying off debts, medical bills, or other urgent financial needs.
2. (Potentially) Penalty-Free Withdrawals
If you are 55 or older in the year you leave your job, you may be eligible for penalty-free withdrawals from your 401(k) under the "Rule of 55." This rule allows individuals to avoid the 10% early withdrawal penalty typically imposed on distributions taken before age 59½ .
Cons of Withdrawing Your 401(k)
1. Tax Implications
Withdrawals from a traditional 401(k) are subject to income tax, which can significantly reduce the amount you receive. The withdrawal amount is added to your taxable income for the year, potentially pushing you into a higher tax bracket.
2. (Potential) Early Withdrawal Penalties
If you are under 59½ and do not qualify for any exceptions, such as the Rule of 55, you may incur a 10% early withdrawal penalty on the distributed amount. This penalty is in addition to the income taxes owed.
3. Loss of Future Growth
By withdrawing funds, you remove them from the tax-advantaged growth environment of the 401(k). This can lead to a substantial reduction in your retirement savings over time, as you lose the compounding growth on those funds.
4. Mandatory Withholding
The IRS mandates a 20% withholding on 401(k) withdrawals for federal taxes, which may not cover the total tax liability if you are in a higher tax bracket. This withholding can reduce the immediate cash available from the withdrawal.
Considerations Before Withdrawing Your 401(k) Funds
Evaluate immediate needs vs. long-term goals: Carefully assess whether the immediate need for funds outweighs the long-term benefits of keeping your retirement savings intact.
Consult a financial advisor: A fiduciary financial advisor can help you understand the tax implications and explore other potential sources of funds before making a withdrawal from your 401(k).
Explore alternatives: Before deciding to withdraw, consider alternatives such as a loan from your 401(k) or other less costly financing options.
Hear from Real Boeing Retirement Clients
From Corporate Finance at Boeing to Financial Freedom with Family
Option #3: Rolling Over Your Boeing 401(k) to a New Employer
Rolling over your Boeing 401(k) into another retirement account can be a great way to maintain tax advantages and potentially enhance your investment options. There are two main ways to do this:
Rolling over your funds to a new employer’s 401(k)
Rolling over your funds to an IRA
We’ll look at the new 401(k) option first.
Pros of Rolling Over to a New Employer’s 401(k)
1. Simplification of Accounts
Consolidating your 401(k) funds into your new employer's plan can simplify managing your retirement savings, making it easier to track and manage investments in one place.
2. Higher Contribution Limits than IRAs
Compared to IRAs, employer-sponsored 401(k) plans typically offer higher contribution limits, allowing you to save more pre-tax dollars for retirement. This can be beneficial for those aiming to maximize their retirement savings.
2. Potential Deferral of RMDs
If you continue working for your new employer past the age of 73, you may be able to defer any RMDs from your new 401(k) plan until you retire. This can be advantageous for tax planning and extending tax-deferred growth.
Cons of Rolling Over to a New Employer’s 401(k)
1. Limited Investment Options
Many 401(k) plans offer a limited range of investment choices compared to IRAs, which can restrict your ability to diversify your portfolio or select specific investment options that align with your risk tolerance and retirement goals.
2. Plan-Specific Restrictions and Fees
The new employer's 401(k) plan may have higher administrative fees or less favorable investment choices than those available in an IRA. It's crucial to compare these aspects before deciding to roll your funds over.
Considerations for Rolling Over to a New Employer’s 401(k)
Compare investment options and fees: Assess the new plan's investment choices and fee structures against your current plan and potential IRA options.
Direct vs. indirect rollovers: Opt for a direct rollover, where your funds are transferred directly to the new account without you taking possession of them, to avoid potential tax withholdings and penalties. Indirect rollovers involve you receiving the funds and then depositing them into the new account within 60 days to avoid taxes and penalties.
Hear from Real Boeing Retirement Clients
From DIY’ers to Retirees
Option #4: Rolling Over Your Boeing 401(k) to an IRA
Another option is to roll over your Boeing 401(k) funds to an IRA.
Pros of Rolling Over to an IRA
1. Broader Investment Choices
IRAs offer a wide array of investment options, including:
Individual stocks
Bonds
Mutual funds
ETFs
This flexibility allows for a customized investment strategy tailored to your financial goals and risk tolerance.
2. Control Over the Account
IRAs provide greater control over your retirement investments, allowing you to choose your financial institution and manage your investments more actively. You can also decide between a traditional IRA (tax-deferred) or a Roth IRA (tax-free withdrawals in retirement), depending on your tax planning strategy.
3. (Potentially) Lower Fees
Depending on the IRA provider, you may benefit from lower fees compared to some 401(k) plans. This can result in more of your money being invested rather than spent on administrative costs.
Cons of Rolling Over to an IRA
1. Complexity
The process of rolling over your 401(k) into an IRA involves coordinating with your 401(k) plan administrator and the new IRA provider. This can be complex and requires careful handling to avoid tax implications.
2. Tax Consequences
If you choose to roll over to a Roth IRA, you will owe taxes on the converted amount since contributions to a Roth IRA are made with after-tax dollars. This can result in a significant tax bill if not properly planned for.
3. Indirect Rollover Risks
While a direct rollover is generally straightforward, an indirect rollover involves receiving the funds and then depositing them into the new account within 60 days. Failing to complete this process in time can result in taxes and penalties, including a 20% mandatory withholding on the distribution.
Considerations for Rolling Over to an IRA
Evaluate investment options and fees: Compare the fees and investment options available in an IRA to those in your current 401(k) plan.
Direct vs. indirect rollovers: A direct rollover, where funds are transferred directly from your 401(k) to your new IRA, is typically the safest option to avoid taxes and penalties. Indirect rollovers, where funds are first disbursed to you before being deposited into a new account, require careful management to avoid financial pitfalls.
Seek professional advice: Consulting with a financial advisor can help you navigate the complexities of rollovers, including tax implications and investment strategies.
PRO TIP: If you’re interested in setting up a Roth IRA, the Boeing Mega Backdoor Roth program is a great way to do this.
So — Should You Defer, Withdraw, or Roll Over Your Boeing 401(k)?
The right way to manage your Boeing 401(k) will ultimately depend on your personal needs and goals. Unfortunately, there’s no one-size-fits-all answer. The good news is that you don’t have to figure it out on your own!
At TrueWealth Financial Partners, we give our clients the personalized support they need to make the most of their retirement plans. Contact us, and we’ll be happy to answer all your questions and help you in any way we can.
Schedule your free consultation today!
Let’s talk.
FAQs
What happens if I don't roll over my 401(k) after leaving Boeing?
If you don't roll over your 401(k) after leaving Boeing, you can leave the funds in the company's plan, but you may face limited investment options and will need to take required minimum distributions (RMDs) starting at age 73.
Can I roll over my Boeing 401(k) into a Roth IRA?
Yes, you can roll over your Boeing 401(k) into a Roth IRA. The Boeing Mega Backdoor Roth program is a great option for this!
What are the benefits of rolling over my 401(k) into an IRA?
Rolling over your 401(k) into an IRA provides greater investment flexibility, potentially lower fees, and the option to choose between a traditional IRA (tax-deferred) and a Roth IRA (tax-free withdrawals in retirement).
Are there any penalties for withdrawing my 401(k) funds before retirement age?
Yes, withdrawing 401(k) funds before age 59½ typically incurs a 10% early withdrawal penalty, in addition to being subject to income taxes on the distribution. However, there are exceptions, such as the "Rule of 55," which may allow penalty-free withdrawals if you meet certain criteria.
How can I decide which option is best for my 401(k)?
Deciding the best option for your 401(k) depends on your financial goals, tax situation, and retirement timeline. Consulting with a financial advisor can provide personalized advice to help you make an informed decision.