Roll your 401(k) balance to an IRA or keep the 401(k)?
This is a question most, if not all, retirees or people switching jobs will face. Most of the time, rolling to an IRA is the appropriate action, but not always. You should always speak with a financial professional before making your decision. Until then, here are a few things to consider.
Why Rollover to an IRA?
More Investment Options - An IRA gives you the option to have more customized financial advice on investments than a typical 401(k) fund lineup of 20 funds. Control - With an IRA you decide who to work with, not who your former employer selects. If you have multiple 401(k) accounts from different employers, you can open a single IRA and rollover all the different 401(k) accounts to the single IRA. Once you have reached 59 ½, it is easier to request a distribution from the IRA than it is from a 401(k).
Confidentiality - The IRA is yours. Your former employer no longer has access to your account information.
Why keep your 401(k)?
10% Penalty Avoidance - If you leave employment between the ages of 55 and 59 ½, you can normally take penalty-free distributions from the 401(k). However, if you roll to an IRA and need a distribution before you turn 59 ½, you may have to pay a 10% penalty.
Asset Protection for Larger Accounts - Federal law shields your 401(k) assets from creditors, lawsuits and bankruptcy. IRAs generally carry protection to $1,245,475 and are governed by state laws.
Fees - Fees associated with the plan and IRA should be considered before making a decision. If an advisor wants to rollover your 401(k) into an IRA containing annuities, nonmarketable securities, or other high cost investment options, you might want to consult someone else.
Remember, if you have an outstanding loan in your 401(k), it will have to be addressed at your job termination. It normally involves paying it back or treating the outstanding balance as a distribution.
The rollover decision is an important one. Work with a trusted advisor who puts your best interest first. For that reason, we recommend using advisors who avoid transaction fees and commissions.