What IRA Should I Roll My 401k Into?
As soon as you change jobs, it is essential that you know what to do with your 401(k). Rollover into an IRA may offer lower fees and greater investment choices while providing tax advantages.
Learn the options available to you in this article.
There is a wide variety of IRA providers, from online brokers to robo-advisors. Your choice will depend on your investing goals and budget – for instance if you prefer self-management of rollover investments yourself then look for an online broker with low account fees, an impressive selection of low-cost funds, and customer service that meets your standards such as Wealthfront robo-advisor can assist with creating portfolios tailored to risk tolerance and goals at low fees.
Keep in mind that if you leave an employer’s retirement plan and transfer assets directly into an IRA, this could potentially incur taxes when turning 7012. A direct rollover from the original plan into an IRA could help avoid this tax bill when turning 7012.
If you are transitioning away from a SIMPLE IRA, make sure you do it carefully when rolling over. Pulling money too soon may result in the IRS imposing a 25% penalty tax; to avoid this levy and save more for retirement over time by rolling into another employer-sponsored retirement plan with no contribution limits can help. Keeping all your retirement savings together also makes tracking performance and rebalancing much simpler as retirement age approaches.
Your options for investing online could include brokers or robo-advisors offering lower fees than your 401(k). When looking at potential providers, make sure you use one that specializes in IRAs – Betterment provides up to $5,000 free in fees per year when rolling over from another 401(k).
Robo-advisors automate investment management and provide advice to customers using custom software and algorithms. Typically they ask questions about your goals, risk tolerance and financial situation to build a portfolio tailored specifically to you. Their services may either be discretionary, where trades are automatically executed on your behalf or non-discretionary where you decide when and how much to invest.
A quality robo-advisor will also provide you with a transparent breakdown of their fees and charges, so be sure to confirm whether it has registered with either the SEC, state securities regulators, or FINRA in Canada. Also look at their track record as well as any disciplinary records they may have had in the past.
Robo-advisors make it easier to generate retirement income tax-smartly, helping estimate and suggest withdrawals from both taxable accounts and retirement savings to minimize tax bills in advance, harvest losses to reduce taxable income when necessary, or harvest losses to lower them altogether; all features that will become particularly helpful once required minimum distributions start happening during early seventies.
No matter your style of investment management – from DIY rolling to full service brokers – there’s sure to be an option that meets your needs. Be wary, however, of marketing pitches and fees that add up quickly; for instance if you hold multiple IRAs with various brokers who offer bundle discounts be sure to compare each account’s individual fund fees, transaction fees and management costs before selecting an option with bundle discounting in mind.
Rolling your retirement accounts over to an IRA allows you to consolidate them all in one account and simplify managing them, particularly as retirement age approaches and required minimum distributions (RMDs) become necessary. Furthermore, these accounts typically offer more investment choices such as no-load mutual funds and commission-free ETFs than traditional retirement accounts do.
However, if your employer offers a 401(k) plan with reasonable fees and services that meet your needs, there may be no reason to switch. Just ensure that you know about any costs or services involved as staying put could cost over time in terms of lost investment growth. NerdWallet’s best IRA providers include both traditional brokerage options with reasonable fees as well as robo-advisors offering customized portfolios at an affordable cost based on 15 factors like account fees/minimums/investment options/customer service/mobile app capabilities
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