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Minnesota Lay-Offs Mean 401(k) Decisions

When you leave your company, the decision on what to do with your 401(k) retirement plan is simple.

Since the first of the year, the list of Minnesota companies that have cut a significant amount of Minnesota employees includes Lockheed Martin, Nestle Nutrition, Tyco Electronics, Capella Education and Hutchinson Technology.

Employees forced to leave their jobs need to make a decision on what to do with their 401(k) company retirement plan account. The options are to keep the existing company retirement plan at the former company or “roll it over” to a self-directed individual retirement plan account.

The former company usually encourages the laid-off employee to leave their company retirement plan account in the company retirement plan. The reason is that the larger the company’s retirement plan assets, the better negotiating options the company has with the company retirement plan provider.

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This decision would be in the best interest of the former company, rather than in the best interest of the laid-off employee. Why would a laid-off employee ever make that decision?

A lay-off announcement is a great time to leave the high-cost, limited options, and poor investment performance of a former company 401(k) retirement plan.

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In the majority of employee lay-offs, I have found that the best decision is for the former employee to “roll over” their former company 401(k) retirement plan account into a self-directed IRA account. The reason is that an IRA account offers no annual fees, lower trading costs, and a wider choice of investment options than most company retirement plans.

More importantly, a self-directed IRA account allows a laid-off employee to bring a professional investment advisor into the investment management of their IRA account.

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