401k And Ira

401k Rollover

What Are The Considerations For A 401K Rollover?

401k Rollover

Throughout the life of an individuals employment, you will no doubt endure several jobs. When you leave employment to resume your next position, you will be faced with determining what to do with your 401K account. A 401K rollover is an option you will consider. Whether or not it is the best option will depend on other factors. The decision, for the most part, will largely depend on the investment options provided by the new 401K plan. If the plan is too restrictive, with no latitude for the degree of investing freedom you wish to maintain, a 401k rollover to IRA may be a better solution than a 401K rollover.

You are not required to consolidate your retirement account into one 401K rollover but many people opt to do so for a variety of reasons. The first reason is that it is simply more efficient to maintain one 401K account rather than a variety. If you have a structured a versatile solution, you may also have more investment options. For many people who want to take an active interest in managing their 401 k rollover, having the funds pooled in one centralized account allows them to allocate funds in accordance with their desired investment criteria. In some 401K plans, the options can be restricted to a family of chosen funds. Greater flexibility allows the individual to take advantage of access to greater asset classes such as no load mutual funds that can ultimately reduce the fees your account would ordinarily be required to absorb.

401k Rollover

The largest potential advantage of a 401k transfer is a lowering in overall fees. Some investment products have higher fee structures and can be prohibitive. If you have a self directed brokerage account included as part of you 401K rollover option, you can take advantage of sector, index and exchange traded fund products. This can ultimately result in higher returns over the lifetime of you retirement investment activities. In this case, an IRA may be the best solution.

401K rollovers to a IRA is the best alternative for individuals who want to maintain maximum control over their investment decisions whilst continuing to receive the benefits of compounding tax deferred returns. With a direct rollover, the funds from your 401K account are paid straight into your IRA account. The 401K administrator is not required to withhold any income tax and you would not incur any penalties in doing so. For individuals over the age of 59 a separate set of rules apply.

For most, a 401K rollover is a solution that can allow you to continue to accumulate savings and build a nest egg. There are early penalties for early withdrawal so it's important that you obtain the correct documentation, understand your choices and execute the 401K rollover in the most appropriate way.

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