What I should consider before rolling my 401k to an IRA . Did you know????

What I should consider before rolling my 401k to an IRA . Did you know????

May 10, 2023

Rolling over a 401(k) to an IRA can be a smart financial move for some individuals, but it is important to carefully consider the pros and cons before making a decision. Here are some things to consider:

  1. Investment options: One of the primary reasons to consider rolling over a 401(k) to an IRA is to gain more investment options. Many 401(k) plans have a limited selection of investment choices, while an IRA offers a wider range of options, including individual stocks, bonds, and alternative investments. Consider whether the investment options available in your 401(k) plan meet your investment goals and risk tolerance.

  2. Fees: Another important factor to consider is fees. 401(k) plans often have lower fees than IRAs due to their size and bargaining power. However, fees can vary greatly depending on the plan and the investments selected. Evaluate the fees associated with your 401(k) plan and compare them to the fees associated with an IRA. If the fees associated with an IRA are higher, consider whether the potential investment gains outweigh the additional costs.

  3. Employer contributions: If your employer offers a matching contribution to your 401(k) plan, it may be beneficial to keep your money in the plan. Rolling over your 401(k) to an IRA would result in losing access to any employer contributions.

  4. Protection from creditors: Depending on the state you live in, 401(k) plans may offer better protection from creditors than IRAs. In some cases, IRA assets may be subject to seizure in a bankruptcy proceeding. Consider the potential risk of creditors and whether a 401(k) plan offers more protection in your state.

  5. Required minimum distributions: Once an individual reaches age 72, they are required to take required minimum distributions (RMDs) from their 401(k) or IRA. However, the rules for RMDs are different for 401(k) plans and IRAs. For 401(k) plans, an individual can delay RMDs if they continue to work past age 72. In contrast, IRAs require RMDs regardless of employment status. Consider whether the RMD rules for your 401(k) or IRA fit your retirement goals and plans.

In summary, rolling over a 401(k) to an IRA can provide more investment options and flexibility, but it is important to consider factors such as fees, employer contributions, creditor protection, and RMD rules before making a decision. Consult with a financial advisor or tax professional to determine if a rollover is right for your individual circumstances. You can Leave the money in his/her former employer’s plan, if permitted; • Roll over the assets to his/her new employer’s plan, if one is available and rollovers are permitted; • Roll over to an IRA; or • Cash out the account value.

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