You could think you're taking control of your future simply by maintaining a qualified retirement plan offered by a former employer, like a 401(k), 403(b), or federal government 457 plan. But are you? A few retirees take a passive procedure for their retirement assets, preserving accounts with past employers for the sake of simplicity. Let's look at a 401k IRA rollover as a solution. First, a 401k IRA rollover has many benefits.
If you have a retirement account with just a single employer, you may have suitable options and may pay lower fees, so it might be good to leave your retirement resources in your former employer's retirement.
But if you have multiple retirement accounts with different former companies or if your investment selections are limited, you might want to think about combining your assets into one traditional IRA (you don't need several 401k accounts). Here's why.
A 401k IRA rollover could provide you with better flexibility than your current plan. For example, some retirement plans may present limited investment options, an example may be the employer's stock. That restriction could put your retirement savings at risk, particularly if the savings are concentrated within a few funds or even in one company's stock. In contrast, a self-directed 401k IRA rollover could offer various investment options, allowing you to possibly allocate your retirement money more appropriately according to your own investment goals.
It might be challenging to manage investments spread among multiple retirement plans. When you have more than one retirement account, combining your retirement assets right into a single 401k IRA rollover may make it easier to manage and monitor your investments with considerably less paperwork. In addition, keeping retirement resources in one place simplifies beneficiary designations and also estate planning. A 401k IRA rollover is great for this benefit.
The common funds available through your current plan may have high 401k expenses. A small savings of perhaps half a percentage point in account expenses can mean thousands of dollars more in your account over a few decades. In your own 401k IRA rollover, you might have control over the investments you choose and the expense ratios you're feeling are appropriate. The cost calculator available from the Securities and Exchange Commission (SEC) can help define exactly how many dollars we are talking about. Just go to www.sec.gov, and click on 'Calculators pertaining to Investors' under 'Investor Information.'
When you make a direct 401k IRA rollover, no money is actually dispersed to you; it moves right into the 401k IRA rollover account. So you're not taxed unless you withdraw the money later and 100% of your retirement assets can still work for you on a tax-deferred basis.
Currently, there are some complications with relocating money from an employer-sponsored retirement plan into a 401k IRA rollover. Your plan may have several limitations on rollovers. For example, a number of plans may restrict IRA rollovers while you are currently employed by the organization that offers the plan. And, in the event that any part of your investment is actually held in stock, you will need to learn the plan has rules concerning selling your shares. In addition, there may be different creditor protection issues when funds are inside a company plan vs. the 401k IRA rollover. These differ with each State so that you need to check with your individual retirement account rollover custodian. A 401k IRA rollover has great benefits overall.
Lose a Fortune on Your 401k Rollover
If you do not do any of these correctly:
- Opt for a distribution rather than direct transfer
- Rollover company stock to an IRA
- Choose to rollover to a Roth IRA
- Rollover to your new employer’s 401k
- Rollover post-tax contributions