What Should You Do With Your Intel 401(k) When You Retire?
After years of hard work at Intel, you've built up valuable savings in your 401(k) plan. Now comes an important decision: What should you do with those retirement funds?
The choices you make now could significantly impact your financial security and peace of mind in retirement.
What to Expect After Leaving Intel
Within 30 days of leaving Intel, you will receive a distribution packet from Fidelity explaining the options available to you for your Intel 401(k). This packet will include important forms and deadlines, but don't feel pressured to make an immediate decision.
Taking time to understand your options and how they fit into your overall retirement strategy is crucial. Each choice has different tax implications and rules that could impact your financial security for decades to come. This isn’t a decision to be rushed!
Your Four Main Options
1. Leave Your Money in the Intel 401(k) Plan
Leaving your money where it is may be the easiest option. It can also be smart in certain situations. With your money in your Intel 401(k), it will continue to grow tax-deferred. And if you leave Intel at age 55 or older, you can access your funds without the usual early withdrawal fee per the rule of 55. (After age 59 ½, you have full access anyway.)
The Intel 401(k) has strong creditor protection under federal law, so your funds will be safe. The investment options within the 401(k) typically have low fees as well.
However, because you’re no longer employed at Intel, you won't be able to make new contributions. Your investments will also be limited to the options within Fidelity’s 401(k) program, which may not align with your changing needs in retirement
Best for: Retirees who are satisfied with Intel's investment options, value creditor protection, and may need early access to funds.
2. Roll Over to a Traditional IRA
Rolling over to a traditional IRA gives you access to thousands of investment options instead of being stuck with Intel's limited menu. You can choose individual stocks, bonds, mutual funds, ETFs, and specialized investments that match your retirement goals.
Traditional IRAs also offer penalty-free withdrawal options that 401(k) plans don't provide. You can withdraw money without penalties for qualified expenses like buying your first home (up to $10,000), paying for college expenses, or covering large medical bills.
The trade-off is that investment fees might be higher than what you're paying in Intel's institutional plan. You'll also lose access to the rule of 55 benefit, meaning you'll need to wait until age 59½ to avoid withdrawal penalties.
Plus, you'll face required minimum distributions (RMDs) starting at age 73. These are mandatory annual withdrawals the IRS requires based on your account balance and life expectancy. (This would also apply to a traditional pre-tax 401(k), though.)
Best for: Retirees who want maximum investment flexibility and are comfortable managing their own retirement accounts.
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3. Convert to a Roth IRA
Converting your traditional 401(k) to a Roth IRA is another option. Once your money is in a Roth IRA, all future withdrawals are completely tax-free. There are no RMDs during your lifetime, so you can let the money grow indefinitely. This makes Roth conversions particularly valuable if you want to leave tax-free money to your children or grandchildren.
However, since Roth accounts are funded with after-tax dollars, you'll owe income taxes on the conversion amount. Effectively, you would be paying taxes now so you can enjoy tax-free withdrawals later. And because the entire conversion amount is taxed in the year you convert, it could bump you into higher tax brackets. Large conversions may also trigger higher Medicare premiums that can add thousands to your annual healthcare costs.
Best for: Retirees who have other sources of income to pay the conversion taxes and want to minimize future tax obligations.
4. Take a Cash Distribution
This is an option, but not a great one. Taking your entire 401(k) balance as cash is rarely a wise move and should only be considered in true financial emergencies. The tax consequences can be devastating to your long-term financial security.
You'll face immediate taxation on the entire distribution plus mandatory 20% federal withholding. If you're under 59½, you'll also get hit with a 10% early withdrawal penalty. This triple tax hit can quickly erode decades of retirement savings.
Best for: True financial emergencies when no other options exist.
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Making the Right Choice for Your Situation
When deciding what to do with your Intel 401(k), there’s no one-size-fits-all solution. The best choice for you will depend on a few factors, such as:
Your investment style: Do you want access to a broader range of investments, or are you satisfied with what Intel offers? Some people prefer the simplicity of fewer choices, while others want complete control over their investment mix.
Your tax situation: What tax bracket are you in now compared to what you expect in retirement? If you think you'll be in a higher bracket later, Roth conversions might make sense. If you expect lower taxes in retirement, traditional accounts may be better.
Early access needs: Do you think you might need access to funds before age 59½? The rule of 55 could make staying in Intel's plan attractive, giving you penalty-free access five years earlier than an IRA would allow.
Management comfort: Are you comfortable researching investments and managing accounts yourself? Rolling to an IRA requires more hands-on involvement than leaving money in your employer plan.
Fees: Are you willing to shop around for lower-cost investment options, or do you prefer the institutional pricing in your current plan?
Answering these questions can get complicated fast. If you’re not sure which option is best, consider talking to a fiduciary financial advisor.
Intel-Specific Considerations
After-Tax Contributions and the Mega Backdoor Roth
Intel offers employees a great way to convert funds to a Roth account. Known as the mega backdoor Roth, this program lets you contribute after-tax funds beyond the standard 401(k) contribution limits. Then, you can convert those funds in-plan to a Roth IRA.
This is especially useful for high earners who exceed the income limits for a standard Roth IRA.
Outstanding Loan Balances
If you have an outstanding 401(k) loan when you retire, you'll receive a coupon book to continue making payments. Pay close attention to the repayment terms because failing to keep up with payments will cause the remaining loan balance to be treated as a taxable distribution. This could cost you thousands in taxes and penalties.
Stock Options and Restricted Stock Units
When leaving Intel, your stock compensation may require separate planning. Stock option vesting may accelerate upon retirement if you meet certain criteria, and restricted stock unit (RSU) vesting schedules may change as well. However, unvested RSUs are typically lost once you leave Intel.
These equity benefits require their own analysis beyond your 401(k) decision.
Common Mistakes to Avoid
Don't Rush Into a Decision
Many retirees feel pressure to make an immediate choice, but your money can stay in Intel's plan while you carefully consider your options. Take the time to understand how each choice affects your overall retirement strategy. A rushed decision is usually the wrong one.
Avoid Indirect Rollovers
If you decide to roll your 401(k) funds over to another account, always choose a direct rollover. This means Fidelity sends your funds directly to your new account provider without you ever touching the money. This avoids the automatic 20% tax withholding that happens if you withdraw the money first and deposit it in another account yourself.
An indirect rollover also comes with a 60-day deadline to get the money back into a retirement account. Miss that deadline, and the entire amount becomes taxable income.
Don't Ignore the Tax Impact of a Roth Conversion
Large Roth conversions can push you into higher tax brackets and trigger expensive Medicare premium surcharges. Consider spreading conversions over multiple years or converting smaller amounts to manage the tax impact.
Don't Forget About Your Other Intel Benefits
Your 401(k) decision should coordinate with your stock options, RSUs, and any other Intel benefits. These pieces of your compensation package work together, and decisions about one can affect the others.
Don't Navigate This Alone
Your Intel 401(k) represents years of disciplined saving and compound growth. This decision shouldn't be made in isolation or without considering how it fits with your Social Security benefits, any pension income, and your overall retirement strategy. A trusted fiduciary advisor can review your finances and help you build the ideal retirement plan tailored to your unique goals.
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Get Help from a Trusted Arizona Fiduciary Financial Adviser
If you’re ready to nail down your retirement savings plan, we’d love to help. At TrueWealth Financial Partners, we specialize in helping you analyze your full financial picture, understand the pros and cons of each option, and draw up a strategy for you.
As fee-only fiduciary advisors, we don't sell products or earn commissions from investment companies. Our compensation comes solely from our clients, so our advice is always tailored to you. Unlike many financial advisors, we are legally obligated to prioritize your best interests, giving you true peace of mind.
Ready to explore your options with a trusted advisor? Schedule a free consultation, and we’ll be happy to discuss the next steps.
Let's make sure your Intel 401(k) works as hard for your retirement as you did to earn it.
FAQs
How long do I have to decide what to do with my Intel 401(k)?
There's no official deadline. Your money can stay in Intel's 401(k) plan indefinitely while you decide. Take the time you need to make an informed choice rather than rushing into a decision you might regret later.
What is the rule of 55?
The rule of 55 allows you to withdraw money from your employer's 401(k) without the usual 10% early withdrawal penalty if you leave your job at age 55 or older. This only applies to the 401(k) from the employer you just left. You can't use this rule for old 401(k)s from previous jobs. You'll still owe regular income taxes on any withdrawals.
Can I roll over part of my 401(k) and leave the rest?
Yes, you can do partial rollovers. You might roll over most of your money to an IRA for investment flexibility while leaving some in Intel's plan to take advantage of the rule of 55 if needed.
Should I convert everything to a Roth IRA at once?
This is usually unwise. Large conversions can push you into higher tax brackets and trigger Medicare premium surcharges. Consider spreading conversions over several years to manage the tax impact, or convert smaller amounts during years when your income is lower.
Can I roll my Intel 401(k) into my new employer's plan?
Typically, yes. Many employer plans accept rollovers from other 401(k) plans. This might make sense if your new employer has better investment options or lower fees than what you'd find in an IRA. Check with your new HR department about the rules and process.
What happens to my Intel stock options and RSUs?
These are separate from your 401(k) and have their own rules. Stock options may vest immediately upon retirement if you meet certain criteria, while unvested RSUs are typically forfeited when you leave.