Top 3 Reasons to Roll Your Old 401(k) Into an IRA

#1. IRA Investment Options and Tax Advantages

Many employer-sponsored 401(k) plans have pre-selected investment options, such as mutual funds. When transferring your retirement funds to an IRA, you will often have more investment options to choose from, such as stocks, bonds, EFTs, and more.

While the IRS sets annual contribution limits for IRAs, you can easily transfer funds from a 401(k) and invest the dollars in a variety of ways to help your account grow tax-free. This means that once the money is in the IRA, there are no taxes required for capital gains and dividends until distribution, depending which IRA you have. Traditional account owners will owe taxes on withdrawals made once they start taking distributions, whereas Roth account owners will not.

#2. Consolidating Accounts

As you change careers throughout your life, you’ll likely acquire many employer-sponsored 401(k) plans. Experts recommend consolidation into an IRA as a way to reduce investment risk and maintain a clear investment strategy.

As you get closer to retirement age, it’s important to change your investment strategy, which is why consolidation is so important. Not only is it easier to keep track of your funds, but you can appropriately assign funds to different investment options. Some of which may be more conservative or riskier than others. This allows you to protect your retirement nest egg while also testing more volatile markets if you choose to.

#3. Lower Fees and Costs

Many 401(k) plans are subjected to a variety of fees, including administrative costs, asset class fees, and management charges. All of which can reduce investment returns over time.

While an IRA isn’t 100% fee-free, the account is easier to manage and can be done easily by the account owner. This can help reduce the amount of fees you’re paying over time. The more you can manage on your own, the more money you’ll have available to invest in investments of your choosing.

Changing careers is exciting, and while you’re busy diving into new hire paperwork, don’t forget to rollover your 401(k) into an IRA plan. Rolling it over gives you flexibility, control, and the ability to grow your retirement savings efficiently. Learn more about rolling a 401(k) into an IRA here.