To Roll or Not to Roll Your 401k

Updated : Oct 26, 2019 in Articles

To Roll or Not to Roll Your 401k


So today we are going to talk about some of the considerations with regard to 401(k) plans versus IRA plans. In particular, if you have a 401(k) plan from a former employer. So what many people are not aware of is that
there may be some advantages of keeping your money in your 401(k) plan versus rolling it
to an IRA. Number 1: Depending on your age, with an IRA
you cannot access the money inside of those accounts until age 59 and 1/2. If you do, you will be subject to a 10% penalty
plus ordinary income tax. With a 401(k) plan, if you have funds still
in your 401(k) plan and you have left that employer, you can pull your money out starting
at age 55. So that’s about 4 1/2 years earlier that
you have access to your money if it’s in your 401(k) plan versus an IRA. Now that might be the only reason you keep
your money in a prior employer’s 401(k). So the advantages of rolling your money to
an IRA are many. The first is, inside of a 401(k) you typically
have very limited investment options. If you roll the money into an IRA, with Fidelity,
Vanguard, TD Ameritrade, Charles Schwab, whoever. Now you have a world of investment options
available to you. You can manage those accounts on your own
according to your own goals. Number 3: many times within 401(k) plans the
fees with those investment options are much higher than those fees that you could likely
obtain on your own inside of your own IRA. Lastly, if you want to have your accounts
professionally managed, typically you cannot do that with a 401(k) plan. With an IRA, you can hire a competent advisor
to take care of your IRA and manage those accounts according to your goals to make sure
you are financially successful. The last thing I want to mention with regard
to 401(k) plans, and many people are not aware of this, is most people think that ” If I
am still working, I have to leave my money in my 401(k) plan until I retire, regardless
of what age I am.” So if you are over age 59 1/2 and still working,
you can actually roll the full balance, typically, of your 401(k) plan into an IRA. Now you have the universe of investment options
to choose from, can manage those on your own according to your goals, and still make ongoing
contributions to your 401(k) plan. Again, lots of consideration with regard to
what options make the most sense for you. You should seek competent counsel. For more information, go to purefinancial.com.

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