401k Rollover to IRA

When you change jobs or retire you will need to decide what do to with the money you have accumulated in your 401k. For many investors this represents a sizeable investment and it is crucial to make an informed decision.

Many investors believe it is advantageous to do a 401k rollover to a Rollover IRA versus leaving their 401k money in their ex-employer's 401k or transferring it into their new employer's 401k.  Below are the 401k rollover options that are available to you when you retire or terminate your employment.

What are my 401k rollover options when I change jobs or retire?

1. Take the money out in Cash
   For most investors this is the worst option. Taking a distribution in cash has very serious tax consequences. Your previous employer is required to withhold 20% for federal taxes. The cash that you receive will be taxed as ordinary income. The 20% that is withheld will be used to pay the taxes you owe for your federal taxes. However, depending on your tax bracket you may owe more than the 20% that was withheld when you do your taxes for that year. In addition, you are likely to be penalized 10% if you are younger than age 59 1/2. As you can see, this can be a major setback towards saving for your retirement.
    
2. Leave the money with your old employer's retirement plan
   For many investors who are saving for their retirement, this may be a better decision than Option 1 since you will not be penalized or taxed, however there are some disadvantages. Many investors find it difficult to manage and organize their retirement accounts when they have several retirement plans at previous employers. As a result, investment performance can suffer if retirement accounts are not diversified properly. An even more important issue is most employer's retirement plans have a fairly limited number of mutual funds choices (usually only 10-15).
    
3. Transfer the money into your new employer's retirement plan
   Most employers allow you to do a transfer into their retirement plan. Compared to Option 2 this avoids the potential problem of multiple retirement accounts at different employers and the difficulties of managing your investments and organizing them properly. As in Option 2 the same important issue still applies, as most employer sponsored retirement plans have a fairly limited number of mutual fund choices (usually 10-15).
    
4. Transfer the money into a Rollover IRA
   For many investors a 401k rollover into an IRA is the best option for the money they have saved in their previous employer's retirement plan. Compared to Options 1-3 you have several advantages: increased control, greater organization, improved investment flexibility and investment advice.

Advantages of a 401k Rollover to IRA

1. Control
2. Investment Flexibility
3. Investment Advice 

Learn more about the advantages of a 401k rollover to IRA

   Need Help or Advice?  |  Open a 401k Rollover

Disclosures:

*  The information on this page is for informational purposes only and does not constitute, and should not be construed as, professional, legal or tax advice. To determine your individual tax situation and specific needs, please consult a professional tax advisor.

* Information contained in these sections merely highlight some benefits. There are risks involved with all investments that could include tax penalties and risk/loss of principal.