One common goal that all Americans share is to retire as early as they can. Maximizing your retirement income will give you the option to do so as early as possible. During our working years, we are constantly juggling the responsibilities of supporting a family, career growth, and paying down the mortgage.

But retirement is a time to focus on yourself and do the things in life you have always wanted to do. Prior to retirement, we all want to know how much can we spend without running out of money. Maximizing your retirement income is the key to optimizing how much you can spend.

The two key components to maximizing your retirement income are how much you’ve saved for retirement and how much you need to withdraw from your nest egg every year. There are certainly a number of variables to maximizing your retirement income. But the three most important factors are determining your income needs, structuring your retirement income, and reducing taxes.

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Rolling over your 401k sounds pretty straightforward, right? You just call the number on your statement and ask them to send you a check – not so fast. All retirement accounts are subject to a number of different tax rules. In today’s workplace, it can be typical for employees to change jobs as frequently as every 3 years. 

Whether you are retiring or changing jobs, there is usually a lot going on. For most of us, rolling over our 401k becomes an afterthought. In most cases, it’s not time-sensitive and not many people know the benefits of a 401k rollover.

However, retirement accounts are one of the primary sources for creating income in retirement. Due to the favorable tax treatment of these accounts, there is also a lot of tax complexity. It’s crucial to understand how these tax rules apply to 401k rollovers or other similar employer-sponsored plans such as 403b and 457 plans. 

Additionally, there are a number of different benefits to rolling over a 401k and also some drawbacks. Before doing anything, make sure that the decision is consistent with your financial goals.

(Note: There are some unique changes to distributions from retirement accounts in 2020 due to the CARES Act).

Types of 401k Rollovers

Direct Rollover

A direct rollover is when your 401k provider issues a check made out to the custodian where your IRA is held. For example, if your IRA was held at Charles Schwab, the check would be payable to: “Charles Schwab fbo John Smith.”

This is the most popular 401k rollover option since no taxes are withheld and is most likely the best option for you. Plain and simple, this method has the least margin of error.

Indirect Rollover

An indirect rollover is when your 401k provider issues a check made out to you. You typically want to avoid this option because done incorrectly, it can cause a tax nightmare.

First, indirect rollovers are subject to a mandatory federal tax withholding of 20%. So if you requested an indirect rollover for an account balance of $100,000, you will receive a check for $80,000.

Second, you have 60 days to roll these funds over to an IRA or another qualified plan. If you fail to deposit the funds during the 60-day timeframe, the entire amount of the check becomes income taxable, and you are assessed a 10% early withdrawal penalty (prior to age 59 ½) by the IRS.

The Benefits

Consolidation Makes Investing Easier

When you have multiple retirement accounts at different institutions, it’s difficult to manage a unified investment strategy. You will typically have a lot of overlapping asset classes. This can create a lack of diversification in your portfolio.

Asset Allocation attempts to balance risk versus reward by adjusting the percentage of each asset class in an investment portfolio. It is established taking into account the investor’s risk tolerance, goals and investment time frame.

While there are many different investment philosophies and strategies,  most financial experts agree that asset allocation is extremely important. An inconsistent allocation among old 401k accounts can have a profound adverse impact on long-term investment performance.

Increased Investment Choices

Most 401k plans will typically offer anywhere between 10-25 available mutual funds to choose from. In some cases, you may have an asset class that offers only one fund to invest in.

A 401k rollover to an IRA provides the flexibility to invest in almost any security in the investment universe. As an example, if you have a passive investment philosophy, you will have the option to invest in the entire universe of index funds and exchange-traded funds (ETF’s).

Fees are another critical component that heavily influences investment performance. Some funds have expense ratios north of 1%, which is a steep price to pay. Especially if they are under-performing their market index, which is largely the case with actively-managed funds.

By rolling your 401k over to an IRA with a custodian such as TD Ameritrade, Charles Schwab or Fidelity, you can control the fees in your portfolio. But these fees won’t show up on your statement. To find out what your funds are costing you, you can look up the expense ratios of the funds through a simple web search.

Roth Conversions

A Roth Conversion can be a strategy that makes sense if your income is lower than usual in a given year. It’s a strategy whereby you convert pre-tax retirement funds to tax-free funds. While there are some 401k plans that allow you to process a conversion within the 401k, some do not.

When you roll over a 401k to an IRA, there are no limitations on whether you can convert your Traditional IRA to a Roth IRA.  However, you should understand the tax implications of a Roth Conversion before performing one. Work closely with your financial advisor to determine if it makes sense for you.

Deferral of Required Minimum Distributions

Once you reach age 72, you are required to take required minimum distributions (RMDs) from your retirement accounts. Whether it’s an old 401k, 403b or Traditional IRA, you must start your RMDs at age 72 or face a 50% penalty of the amount required to be distributed.

However, you may qualify for an exception from taking RMDs from your current employer-sponsored retirement account if:

  • You’re still working
  • You do NOT own more than 5% of the business you work for
  • You have an employer-sponsored retirement account with the business you work for

If you meet all the criteria above, you may delay taking an RMD from the account until April 1st of the year after you retire.

Net Unrealized Appreciation Strategy

If you’ve purchased your own company’s stock in your 401k, you may benefit from using the Net Unrealized Appreciation (NUA) strategy. This strategy allows you to transfer your company stock (without liquidating it) to a non-retirement account while avoiding the early 10% withdrawal penalty. 

But the real benefit is the tax savings. Let’s say you own $200,000 of your company stock, but your total cost basis is $50,000. With NUA, you would pay ordinary income tax on $50,000 by transferring the company stock to your brokerage account. 

However, you don’t have to pay tax on the $150,000 gain until you sell the stock. When you do, the gain will be subject to capital gains tax rates, which are always more favorable than higher income tax rates. If you have any capital losses, you can use those losses to offset the capital gain.

Reasons Not To Roll Over

The IRS Rule of 55

By now you should know that nearly every qualified retirement plan assesses a 10% tax penalty for early withdrawals before the age of 59 ½ (with a few exceptions).

The IRS Rule of 55 applies to an employee who is laid off, fired, or who quits a job between the ages of 55 and 59 ½. It allows the employee to pull money out of their 401k or 403b plan without the early withdrawal penalty. This applies to workers who leave their jobs anytime during or after the year of their 55th birthdays. 

However, there are a few limitations. The rule only applies to assets in your current 401k or 403b—not older plans held with previous employers. Also, the distribution is subject to the mandatory 20% federal tax withholding. Nevertheless, this can be a useful strategy for those retiring before age 59½.

Creditor Protection

Creditor protection can also be an added benefit provided by 401k plans, depending on the financial circumstances. In 2005, a federal law was passed that provided retirement accounts with strong bankruptcy protection, no matter what state you live in.

So in the event of bankruptcy, rolling over your 401k funds into an IRA shouldn’t diminish protection from creditors. However, in a non-bankruptcy situation, creditor protection is mostly governed by state law.

If you live in a state that offers strong protection to IRAs in non-bankruptcy situations (which most states do), then you’re probably not giving up too much by rolling over your 401k to an IRA.

If, on the other hand, you live in a state that does not offer a similar level of protection, you have to decide how important of an issue creditor protection is for you. If it’s not a concern and the benefits of an IRA rollover are more important to you, have at it! 

401k Rollover Mistakes To Avoid

Cashing Out

Unless it’s a last resort, cashing out your 401k isn’t something you really want to consider. Again, it can be very costly with the early withdrawal penalty of 10%. In addition, the entire balance of your plan becomes taxable in the year of distribution.

Additionally, your retirement accounts have favorable tax benefits, which help their compound growth in the long run. With limitations on the amounts you can contribute each year, cashing out retirement accounts really sets you back. 

In 2020, contribution limits for 401k’s are $19,500 and $6,000 for IRA’s. Those over the age of 50 can put in another $6,000 in the form of a catch-up contribution. As you can see, these limitations make rebuilding retirement funds challenging.

Rolling over to the wrong IRA

When rolling over pre-tax 401k funds, you want to ensure that the receiving account is another pre-tax retirement account such as a Traditional IRA or 401k. If you were to roll these funds directly into a Roth IRA, you will cause a taxable distribution.

Conversely, if you have after-tax funds in a 401k from contributing more than the annual contribution limit, you wouldn’t want to roll these over to a Traditional IRA.

The reason is that you have already paid taxes on these funds making them eligible to be rolled over to a Roth IRA where the growth is tax-free. The same applies to Roth 401k funds.

The Bottom Line

Ultimately, there are a number of different benefits to rolling over your 401k plan. Enhanced investment options, lower fees and more tax planning opportunities are some of the primary reasons you want to consider a rollover. 

There are also some very valid reasons why you may want to keep funds in your 401k, especially if you plan on early retirement. Like with any financial decision, it’s important to weigh the pros and cons.

Not only does the decision need to be consistent with your financial goals, but it also needs to make sense from a tax perspective.

As always, make sure you work with your financial advisor and/or tax professional to ensure that you are making the best financial decisions and avoid costly mistakes.

As Covid-19 continues to spread and economic uncertainty increases, the adverse impact on charitable gifting in San Diego County continues to worsen. Charitable contributions had already been on a significant decline since 2018 due to The Tax Cuts and Jobs Act of 2018 (TCJA), which reduced the ability of many taxpayers to claim itemized deductions due to the increase of the standard deduction: from 46 million in 2016 to only 18 million in 2018. With so many nonprofits relying largely on donations, the Covid-19 pandemic has exacerbated the problem making it extremely difficult for these organizations to continue serving our San Diego Community. 

To make matters worse, many of the people that need assistance from nonprofits are the ones that are being hardest hit by the pandemic with the San Diego unemployment rate currently at 15%. However, if you have the ability to make charitable donations, there are a number of ways for you to do so while saving money on your taxes, including some new opportunities that have become available due to recent federal stimulus. In this article, we review some of the best strategies to save taxes, give to nonprofits and highlight some great nonprofits that are doing amazing work in our local San Diego community.

What’s New In 2020

Changes to Standard and Itemized Deduction Limits

The CARES Act passed earlier this year allows donors to use a universal tax deduction of up to $300 on their 2020 tax return if they take the standard deduction. This provision means that all taxpayers who don’t itemize deductions can give $300 and get a deduction, otherwise referred to as an above-the-line deduction.

For taxpayers who itemize deductions, an additional tax incentive that increases the cap on charitable contributions from 60% of your Adjusted Gross Income (AGI) to 100% is now available in 2020. This recent legislation ensures that all taxpayers that donate to nonprofits will receive increased tax incentives this year.

As an example, let’s say a taxpayer who has $500,000 of AGI for 2020 would like to make a $1 million charitable contribution this year. In prior years the income tax deduction would be limited to $300,000 or 60% or $500,000. 

For this year only, the CARES Act allows for a charitable contribution deduction of $500,000, 100% of AGI in this example. This would still leave an additional $500,000 million charitable contribution carry-forward (subject to the 60% of AGI limit) that can be used in the subsequent five tax years.

Increased Deduction Limits for Corporations

For corporations looking to extend their charitable giving efforts, the CARES Act raises the annual cash gift limit from 10% to 25% of corporate taxable income. To ensure the deduction comes through, each partner or shareholder must individually elect to receive the benefit of the increased charitable deduction on their taxes. 

Higher Incentive for Food Donations

In addition to cash donations, the CARES Act now incentivizes food donations in a big way. The tax deduction available for food inventory has been raised from 15% to 25% for the 2020 taxable year, in the face of heightened visibility and exacerbation of food insecurity during the crisis. Taxpayers who donate food to their local food pantry can claim the value of that food on their taxes. 

On a larger scale, if you’re a restaurant with an income of $100,000, and you donate $25,000 worth of food inventory, you can reduce your business’s taxable income to $75,000. If you’re able to donate more than 25% of your AGI — let’s say $50,000 — you’ll still only be able to write off $25,000 this year, and the additional $25,000 will carry over to the next year.

Traditional Gifting Strategies

Donating Appreciated Securities

For donors who own appreciated securities such as stocks in their brokerage accounts, donating these securities allows you to avoid paying capital gain taxes upon the potential sale. If you itemize deductions, you also get the benefit of a current-year tax deduction. 

As an example, let’s say you purchased Apple stock for $20,000, it’s current value is $50,000 and you are in a combined federal and state marginal tax bracket of 25%. Selling your position means that you will owe $7,500 in taxes on the gain. 

Since capital gain tax rates can be as high as 37%, this is a great way to boost the amount you are giving to charities and reduce your tax bill. Non-profits do not pay taxes on the sale of securities so both parties receive a substantial benefit. Fidelity Investments has a simple calculator to help you determine your potential savings.

Establish A Donor-Advised Fund for Charitable Giving

A donor-advised fund is a simple, tax-effective way to dedicate money to charitable giving. You can establish a donor-advised fund at most custodians and brokerages. You then make a donation of cash or other assets to the brokerage account, which makes you eligible to take a tax deduction for your charitable gift since the donor-advised fund is a program of a public charity. Once the donation is made, you can recommend which qualified charities you would like to give to. 

The timing is flexible, as are the number of charitable causes you select to receive a donation. Let’s say that you anticipate a higher level of income in the current tax year and you typically gift $10,000 per year to charities. You can contribute $50,000 to a donor-advised fund in the current tax year and receive the full deduction for that year, but continue to distribute your $10,000 gift annually over the next 5 years to any charity of your choosing. Any growth that occurs in the account will be tax-free since the funds are earmarked as a charitable contribution.

Using A Charitable Deduction To Facilitate A Roth Conversion

A popular tax planning strategy with retirement accounts is to make a charitable donation to offset the tax costs of converting a Traditional IRA to a Roth IRA. Converting a traditional IRA to a Roth IRA typically means paying significant taxes, but making a charitable contribution can help offset that income. This strategy may make sense if you already donate regularly to a charity and have sufficient non-retirement assets to pay the tax cost of the conversion.

Qualified Charitable Distributions (QCDs) 

In prior years, clients over age 70.5 who were taking Required Minimum Distributions (RMD’s) from their IRA accounts may have completed a Qualified Charitable Deduction (QCD). Tax law allows donors to give up to $100,000 of their RMD directly to a qualifying charity of their choosing. 

The amount sent to charity counted towards the donor’s RMD for the year but was excluded from their taxable income. The CARES Act has waived RMD’s in 2020, but this is another popular tax planning strategy that to consider with retirement accounts in future tax years. 

Charitable Trusts

For donors that want to give substantially more than the aforementioned strategies, charitable trusts are a great option to donate during your life or to leave a legacy when you are gone. These trusts are irrevocable and the primary types are Charitable Lead Trusts (CLT’s) and Charitable Remainder Trusts (CRT’s).

Charitable lead trusts give a set amount of the trust’s income to a charitable organization, and then the remaining income either reverts back to the grantor’s beneficiaries or stays in the trust at the grantor’s death. CLTs are a great giving strategy when you don’t need a set amount of additional income, and your primary goal is to donate cash to an organization. 

On the other hand, charitable remainder trusts, also referred to as split-interest trusts, make payments the opposite way of CLTs. First, the donor gives an asset to an irrevocable trust. Then, the income from a charitable remainder trust goes first to one or more beneficiaries in set amounts during their lifetimes, and then the remaining income goes to a charitable organization at death.

There are a number of ways we can help nonprofits during these difficult times when they need it the most. Whether you can donate your time through volunteering, donate items you may no longer need or give financial resources. Our tax system has always encouraged charitable giving through tax incentives, and changes in tax law this year have made 2020 one of the best years to do so. 

To determine whether these gifting strategies are suitable for you, please consult your tax advisor. Lastly, if you are new to charitable giving or are looking for some causes you are passionate about, the following is a list of some great organizations in San Diego County that are constantly making a positive impact in our community.


Workshops for Warriors
Contact Information
Rachel Luis y Prado
P:  619-550-1620

Contact Information
Stephanie Kiesel
P:  858-309-4412

Workshops for Warriors is a 501 (c)(3) nonprofit school that provides veterans and transitioning service members with industry-leading advanced manufacturing education and job placement. The organization trains, certifies, and places a veteran into a high paying entry level job in four to eight months. Students become welders, CNC machinists, CNC mill and CNC lathe operators, parts designers and programmers.

Zero8hundred empowers our military service members, recent veterans and their families with the essential connections they need to effectively access the local opportunities they’re looking for so they can thrive in their transition from the military to civilian life in Southern California.


Ilan-Lael Foundation
Contact Information
Marianne Gerdes
P:  760-765-3427

Connecting people, art, and nature to help people discover their own creativity. The Ilan-Lael Foundation was founded by James and Anne Hubbell in 1982 and has sponsored public art projects, lectures, seminars and exhibitions in San Diego and Tijuana.

Social Causes

Second Chance
Contact Information
Sylvia DuBeau
P: 619-839-0955 W:

MANA de San Diego
Contact Information
Rosa Maria Hernandez
P:  619-297-0115
E:  rmhernandez@manasd.orgW:

Kim Center for Social Balance
Contact Information
Dr. Kim Hei-ock
P:  858-344-0315

Second Chance offers specialized workforce readiness training, sober-living housing, educational programs and support services essential to achieving self-sufficiency. The mission is to disrupt the cycles of incarceration and poverty by helping people find their way to self-sufficiency.

To empower Latinas through education, community service, advocacy and leadership development. MANA de San Diego is the largest and most active MANA chapter, with more than 4,000 supporters.

To accelerate the achievement of equal status for all genders in the workplace. In our work with employers and communities, we use data-driven tools to collaboratively design and implement actionable plans. Our strategy generates impact on both the macro and micro levels:


University of San Diego
Contact Information
Mary Rose McDermott
P:  619-260-4744

East Region Adult Education
Contact Information
Ute Maschke
P:  619-588-3509

Friends of Downtown
Contact Information
Jessica Schatz
P:  619- 709-9066

The University of San Diego is a Roman Catholic institution committed to advancing academic excellence, expanding liberal and professional knowledge, creating a diverse and inclusive community and preparing leaders who are dedicated to ethical conduct and compassionate service.


Moving learning opportunities forward for all San Diegans to achieve economic mobility through education that works. Educating and training adults and connecting workforce talent to regional businesses.

Friends of Downtown (FOD) is a 100% volunteer registered 501(c)3 non-profit organization committed to the enhancement of San Diego’s downtown community through scholarships, community service, education and networking. The organization is made up of professionals and residents who work and/or live in the downtown community.


San Ysidro Health
Contact Information
Adrianna O’Donnell
P:  808-291-4412

San Ysidro Health is a federally qualified community health center providing high quality, compassionate, accessible and affordable health care services to 107,000 patients at 42 program sites from South Bay to rural East County.