Is it Better to Rollover to a 401k Or an IRA?
A 401(k) is an employer-sponsored retirement plan, offering employees tax-deferred savings and investment. An IRA, on the other hand, is an individual retirement account open to anyone.
IRAs often provide greater investment options and lower fees than 401(k) plans, making the management of savings left behind easier.
1. Tax-Deferred Growth
Most investors would much prefer delaying tax payments as long as possible; that is what makes tax-deferred growth such an attractive option; it allows investments to compound more efficiently over time.
However, if you decide to cash out your 401(k) or invest in your new employer’s plan instead of keeping your funds within an old plan with limited investment options and high fees, these advantages could be lost over time.
Rolling over into an IRA allows you to preserve the tax advantages. Furthermore, it offers access to an extensive array of investment choices, such as stocks, bonds, mutual funds and exchange-traded funds (ETFs). Finding the appropriate strategy depends on understanding what’s right for your situation – contact an Edward Jones Financial Advisor now so they can discuss all the possibilities and your goals! They’d be more than glad to assist!
2. Higher Account Balances
As account balances increase, investors may struggle with keeping tabs on all their retirement accounts.
Rollovers allow savers to consolidate the accounts from former employers into an IRA they own, typically at a traditional brokerage, credit union, online broker or robo-advisor rated highly by NerdWallet in terms of fees and investment options.
Rollover your 401(k) directly into an IRA allows you to avoid income tax and the 10% early withdrawal penalty (if under age 5912). However, this process may be complex if your former employer offered company stock options in its plan; consulting a financial advisor could be invaluable in managing its complexities.
3. More Investment Options
Remaining invested in your old employer’s plan may make sense if it offers robust investment options and reasonable fees, but most people fare much better by switching directly into an IRA account.
By selecting an IRA provider with an array of low-cost investments and no account fees, you could save hundreds or even thousands over time. Furthermore, hiring a robo-advisor can assist with selecting and rebalancing portfolios according to timeline, risk tolerance and other relevant factors.
Be wary of IRA providers offering one-time incentives such as cash or additional investment options in return for free stock trades. Instead, look for firms with excellent customer service and strong track records as your ideal option.
4. Lower Administrative Fees
IRA providers typically charge lower administrative fees than your former employer’s plan due to how 401(k) fees cover some of its overhead costs; on the other hand, IRA management fees tend to cover investments and financial planning services provided.
Furthermore, many IRA providers provide low-cost ETFs and no-load mutual funds while 401(k) plans often feature higher-fee index funds with costly advisory services – saving you millions over your retirement life!
Beagle makes it simple and secure for you to move old 401(k)s into an IRA of your own control, where they’ll continue growing tax-deferred for decades of retirement success.
5. More Control
Many 401(k) plans offer low fees; however, their expenses can still detract from your returns over time. With an IRA, however, you have more freedom in finding financial institutions with lower overall fees for funds, transactions and management services – including fund fees, transaction fees and annual management costs.
With direct rollover, your plan administrator sends your entire 401(k) account balance directly to your new IRA provider without withholding taxes. You then have 60 days to deposit the money and avoid income tax as well as the 10% early withdrawal penalty.
Be it through leaving your old 401(k) at work or rolling it over into an IRA, make sure that you set aside enough savings each month to take advantage of any employer matching contributions and take full advantage of tax-saving benefits associated with retirement planning. Speak with a financial advisor about all the possibilities.
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