Most people think about translating 401 (k) savings into an IRA only when changing jobs. For many people, this is the perfect time to shift funds, as they can consolidate several retirement accounts from previous employers in one place and take advantage of more investment options.
Reasons you may want to go now
Diversification The investment options in your 401 (k) may be limited and are chosen by the plan sponsor. Converting funds into an IRA can often expand your investment choice. More choice can mean greater diversification of the retirement portfolio and the ability to invest in a wider range of asset classes, including individual shares and bonds, managed accounts, REITs and annuities.
Beneficiary flexibility. For some IRAs, you can name multiple and conditional beneficiaries or name trust as the beneficiary. Other IRAs may allow you to impose restrictions on beneficiaries. These options are usually not available in 401 (k) p. However, please note that not all IRA maintainers have the same rules for beneficiaries, so be sure to check carefully.
Property Control. You own and have access rights from the IRA. Assets in the IRA are also not subject to periods of power outage. For plan 401 (k), the trustee of the qualified plan is the owner of the assets and assets may be subject to periods of outage in which access to the account is limited.
Distribution options If your IRA is configured as a Roth IRA, there is no set age at which the owner is required to make minimum distributions. With 401 (k) and traditional IRA plans, the owner will have to make the minimum payments required by April 1, after completing 70 years of age.
Rolling Over Your 401 (k) to the IRA
You have the most control and the largest selection if you have an IRA. Unless you work for a company with a very high-quality plan – they are usually large Fortune 500 companies – IRAs usually offer a much wider range of investment options than 401 (k) p.
Some 401 (k) plans have only half a dozen funds to choose from, and some companies strongly encourage participants to invest heavily in the company’s shares. Many 401 (k) plans are also funded by variable annuity contracts that provide a layer of asset protection plan, at the expense of participants, which often amount to even 3% per year. Depending on the trustee and selected investments, IRA fees appear to be cheaper.
With a few exceptions, IRAs allow virtually any type of asset: shares, bonds, certificates of deposit (CDs), mutual funds, listed funds, real estate investment funds (REITs) and annuities. wanting to set up a self-managed IRA, even some alternative investments, such as oil and gas rent, real estate and commodities can be bought on these accounts.
If you decide on an IRA, your second decision is to open a traditional IRAor Roth IRA. Basically, the choice is to pay income taxes now or later.
For most people who change jobs, there are many benefits to transferring 401 (k) to an IRA. That said, a lot depends on the specifics of the 401 (k) plan, both the old employer and the new one – investment options, fees, loan reserves, etc. It is also important how these conditions and features compare with those offered in the IRA, which you can set up in a brokerage house or bank.
You can also have the best of both worlds. You don’t have to transfer all money to your IRA account. Part of your balance may remain in your previous company’s 401 (k) if you are happy with the returns you receive. You can then set up a new IRA or transfer the remainder to an existing account or new passing IRAs. After rolling, you can contribute to both the new 401 (k) and IRA (traditional or Roth) companies as long as you don’t exceed your annual premium limit.