One of the first things you should do when changing jobs is to look into rolling over your 401k into an IRA. If you have several accounts at previous employers, you should also consider consolidating your 401k accounts into a single Rollover IRA account.
There are many reasons to rollover a 401k to an IRA, including lower fees, a broader range of investment choices, and the option of converting to a Roth IRA. If you are converting many funds into one IRA account, you can also have the convenience of accessing your retirement funds in one place.
Every situation is unique, and if you are unsure if rolling over your 401k to an IRA is right for you, consult with the rollover specialists at ETrade, or a trusted financial adviser.
Reasons To Rollover A 401k To An IRA: Lower Cost
A 401k plan can be expensive, as there is often an administrative fee charges as a percentage of assets in addition to the fees charged by the underlying funds in your 401k plan. These fees are often unclear to the investor, and can eat away at your retirement funds.
An IRA, however, is more transparent in its fees, as well as more low-cost investment options. If you would like to invest in mutual funds, you can choose funds with more affordable expenses. If you choose to invest in individual stocks, you will only pay the commission on the purchase or sale of the security.
Reasons To Rollover A 401k To An IRA: More Investment Choices
One of the main reasons to rollover a 401k to an IRA is that an IRA offers a broader range of investment choices over a 401k. 401K plans only offer a handful of choices for investments, usually ranging between 5 to 10 investment choices.
If you are rolling over your 401k to an IRA using a major online brokerage such as ETrade, you will have access to virtually any stock or mutual fund, and can invest your retirement money however you see fit.
By limiting your investment options, it becomes difficult to diversify your 401k portfolio, and you could be forced to overweight index funds in order to gain broad market exposure at a reasonable expense. An IRA offers you the opportunity to invest your capital as you see fit, across a broad range of asset classes.
Reasons To Rollover A 401k To An IRA: Option For Roth Conversion
A 401k must be converted to a Rollover IRA, although once you have converted to a Rollover IRA, you can then convert to a Roth IRA. This type of individual retirement account allows you to withdrawal your earnings tax-free upon retirement.
With a Roth IRA there is also no minimum distributions at age 70½ as seen in traditional IRAs, and no fees or penalties in withdrawals of your original contributions. Also, in 2010 the income limits on Roth conversions was lifted, allowing for anyone to convert a traditional IRA to a Roth IRA.
There are many reasons to rollover a 401k to an IRA, but only you can decide for yourself if this move is right for you. Carefully research all available options before committing any capital.