Should I roll over my 401(k) to an IRA when I get a new job?
Leaving your job for another one and wondering what to do with your 401(k)? You have a handful of options. You could cash out your 401(k), but this is not recommended because you will incur taxes and early withdrawal penalties, if you are younger than 59 1/2. Or, you could transfer your 401(k) into your new 401(k) plan at your new job, if that is permitted in the new plan. Or, you could roll it into an individual retirement account (IRA). It is important to do an analysis about which is better.
Reasons to roll over your 401(k)
An IRA is a retirement account that acts similarly to your 401(k). You can contribute a portion of pretax dollars into a traditional IRA, if you qualify by being within the income limits. These can grow tax-free until you make withdrawals when you reach your retirement age. Typically, an IRA has a maximum contribution limit of $6,000 (or $7,000 if you are age 50 or older). However, when transferring existing retirement funds from a 401(k) account, there is no limit on how much you can roll over.
Some reasons you may want to roll over your 401(k) savings into an IRA include:
- More investment options — 401(k) plans are often limited to only a few investment choices predetermined by your employer. With an IRA, you have a lot more control over what types of investments are available to you and where you choose to invest.
- Lower fees — An IRA might save you on management fees, administrative fees and other expenses that can take a bite out of your savings. On the other hand, if you are paying a commission or management fee to an advisor, it could be more expensive. This is one reason that an analysis should be done.
Reasons to not roll over your 401(k)
- You’re nearing retirement — Once you reach age 72, you are required to make required minimum distributions (RMDs) from your IRA accounts. This is the minimum amount that you have to withdraw each year based on your account balance and age. If you are still working at this age and do not own more than 5% of the company for which you work, you do not have to take any RMDs.
- Federal security — 401(k) savings are protected by federal law from creditors with the exception of IRS liens and child support court orders. IRAs are only protected by state law.
- Greater buying power — Corporate-sponsored 401(k) accounts can make investments at institutional pricing rates, which can help you save on fees. This is not an option for most investment opportunities available to IRAs.
Talk to a ProVise CFP® professional about what to do with your retirement savings
Are you changing jobs and need to figure out what to do with your 401(k) account? It can feel overwhelming because you only have the one shot to make the best decision for you. There are no do-overs. Fortunately, in circumstances like these, you can turn to the guidance of financial professionals who can help you with your personal financial and retirement planning.
At ProVise Management Group, our CERTIFIED FINANCIAL PLANNER™ professionals can get to know you and your current financial circumstances, goals, risk tolerance and personal values to help you develop a plan that works for you. We can also create a written plan for you at a fiduciary standard of care. All our written plans come with an unconditional money-back guarantee. If you are unhappy with your written plan, you can return it to us, and we will refund 100% of the fee paid.
Are you ready to talk to a professional about planning for your retirement? Contact ProVise today to schedule a complimentary consultation.