Have You Resigned or Been Laid Off? Explore 3 Strategies for Your 401(k) Dollars

 |  General Self-Directed IRAs

By J.P. Dahdah, Founder & CEO of Vantagestrategies for your 401(k) dollars

The word of the moment: change.

Between the Great Resignation starting in 2021, and the recent run of layoffs in the tech sector and elsewhere, millions of Americans have experienced a change in employment status.

As a result, they’ve had to take a close look at their 401(k) retirement saving accounts and evaluate their next move.

If you’ve experienced a recent resignation or layoff, it’s important to consider your options. In this article, we’ll look at three top-line strategies you can use to ensure your 401(k) dollars are aligned with your financial goals.

Strategy 1: Keep 100% of Your Funds in an Employer-Sponsored 401(k) Program

Changing jobs is stressful.

It’s no surprise, then, that many people opt to keep their 401(k) decisions simple when making a big change. If you’re moving from one company to another, the low-hanging options are to keep your funds in an employee-sponsored program.

This strategy may involve leaving your funds at your previous employer’s 401(k) plan sponsor. Or it may involve rolling funds over into your new employer’s 401(k) plan offering. Either way, your investments will be squarely restricted within the retirement benefit plan selected by the company.

At the vast majority of companies, the 401(k) plan documents limit a participant’s investment options to a small list of mutual fund investments. These investment options are confined within the stock market, but offer little to no options outside the traditional asset mix of stocks and bonds. As a result, employees may be vulnerable to broad market risk.

Ultimately, this strategy may be best for the employee with limited financial knowledge or time to manage investments looking for a low-effort approach to their 401(k) retirement strategy.

Advantages: Employer-established guidelines, few decisions have to be made

Disadvantages: Limited investment options, lack of diversification outside the stock market, limited investment performance within available investment choices

Strategy 2: Move 100% of Your Funds to a Self-Directed IRA Account

Outside employer-sponsored programs, there is a world of investment options.

By opening a Self-Directed IRA, you can diversify retirement funds beyond Wall Street products.  This allows you to access investment types like private companies, private loans, real estate, and more. Further, you can leverage structures like an IRA LLC for multiple types of assets.

At the same time, venturing outside company programs means more investment flexibility and investor control on one end, but more investor responsibility to do more homework and spend more time vetting options on the other.

Ultimately, this strategy may be best for employees looking for increased control over their 401(k) dollars. By deciding when and where to invest, employees are able to manage their money in a way that would not be possible with an employer-sponsored program.

Advantages: Expansive investment options, more control over your retirement dollars

Disadvantages: The need to make broad investment decisions, more investment selection responsibility

Strategy 3: Diversify Your 401(k) Savings with a Hybrid Approach

The best of both worlds.

It’s important to note the first two strategies are not mutually exclusive. You can pursue them at the same time, adopting a hybrid approach.

This approach allows you to keep part of your 401(k) funds in an employer-sponsored program, taking advantage of the ease and structure. While simultaneously moving part of your retirement dollars to a Self-Directed IRA for more control over investments and a broader array of private market investment opportunities.

The question becomes: what is your investment appetite?

For those investors looking to diversify risk as much as possible, especially during turbulent times, a portfolio that includes multiple asset classes is likely preferred. This portfolio can only be constructed using a Self-Directed IRA, at least in part.

And for those investors looking to leverage unique knowledge or interest, while still keeping a portion of their retirement dollars in the stock market, a portfolio that includes non-stock market assets (like real estate or private companies) is appealing.

Ultimately, this strategy may be best for employees looking to diversify beyond their employer-sponsored benefit programs. By investing a portion of their money outside the stock market, employees can further diversify their holdings and take more control over their retirement.

Advantages: Blend of ease and control, increased diversification 

Disadvantages: Need to manage multiple accounts

Whether you are looking to move your retirement dollars fully to a Self-Directed IRA account, taking complete control over your 401(k), or simply seeking to diversify a portion of your retirement beyond the stock market to reduce risk, Vantage is here to help.  We’ve helped thousands of clients navigate change. And we’d love to help you, too.

Schedule a call with an IRA Specialist if you want to explore your options further.  It’s your money, it’s your move.

Happy investing!