When you change your job or retire, you have to decide what action you’re going to take regarding your employer retirement plan. Most people have a 401(k), although some have a 403(b). You can explore multiple different options, including transferring the account to your new employer, leaving the account with your current employer, having the account distributed in cash, or rolling into an IRA.
There are different pros and cons for each of these options. But the IRA provides unique potential benefits.
If you change your job or retire with a large balance, you might find that the rollover is the ideal choice. Leaving your 401(k) alone can cause your former employer to communicate poorly, which can lead to confusion and anxiety. The sponsors of the plan also aren’t required to provide advice for investments.
Your assets continue to be tax-deferred with the rollover option, and you don’t face any IRS penalties. The assets can then keep growing until a person chooses their income distributions. IRA rollovers give a person maximum control over their account, including the ability to manage it, choose your investments, and talk to your own financial advisor.
Financial advisors are experts who can analyze your account and provide advice regarding the best future decisions. They will communicate regularly and help to manage investments so you don’t have to.
401(k) plans typically have a limited range of investment choices. You might be able to choose bond funds, equity funds, or target-date funds. But when you have an IRA, the range of investment options is much larger. In addition to the 401(k) investments, you’ll typically have access to individual stocks, mutual funds, bonds, alternative investments, and Exchange Traded Funds.
Another advantage to the IRA is that you have an unlimited ability to sell, buy, and adjust your investments. Some 401(k) plans impose limits on the number of times that you can change your investment portfolio per year.
IRA rollovers can also be beneficial when you work with an official financial advisor. In addition to investment guidance, financial advisors can help guide you through long-term financial planning, estate planning, and other additional services to manage your finances.
IRAs have strict regulations, while 401(k)s are more flexible and tend to benefit the employer rather than the employee.