Whenever you change or quit your jobs, and if you have a 401(k) in your current position, you have the option of moving your account into an individual retirement account (IRA). Or when you are retired, it's also a time when you can make the switch-over from your 401(k) to an IRA. Or, in some cases, you can leave it where it is.
Which option should you choose? For most people, rolling over a 401(k) into an IRA is the best choice. Here are 4 reasons why.
1. There Are More Investment Options,
Your 401(k) is limited to a small sampling of the investment options that are available; in all likelihood, you had the choice of a few mutual funds. However, with an IRA, you have much more options to choose to grow and protect your hard-earned money. Having more options can help you develop a better long-term strategy for your retirement savings.
IRAs open a larger universe of investment choices. Most 401(k) plans do not allow the use of risk management.
2. You Might Get Some Free Cash
Financial Institutions are eager for your business. To entice you to bring your retirement money to their company, they may throw some cash your way. Some company offer up to 14% cash bonus just to transfer your money to their company. Depending on your balance, that may be thousands of dollars.
3. There Are Far Fewer Rules
Understanding your 401(k) is no easy task, because each company has a lot of leeway in how they set up the plan. IRAs are standardized by the IRS. An IRA with one broker follows most of the same rules as with any other broker.
4. You Have Estate Planning Advantages
Upon your death, there’s a good chance that your 401(k) will be paid in one lump sum to your beneficiary. IRAs have more payout options. (See 5 Benefits of Rolling Over a 401(k).
The Bottom Line
For most people who are switching jobs, there are advantages to rolling over a 401(k) into an IRA – including uncommon ones: For example, If you former employer goes into bankruptcy, your 401(k) maybe frozen for years since the court needed to make sure there was no monkey business there. During that time, you will have no access, and may lose your retirement fund.
To learn more on how to rollover your 401(k), please contact our advisor at 1-800-278-2105.