Should you Convert your 401(k) Plan into an IRA?

If you take part in an employer-sponsored retirement plan like a 401(k), do you know what to expect if you leave the company for a new job or get laid off? You should wonder where your money goes.

All your company retirement plan contributions are yours. If you change jobs, you have many options with your 401(k) plan account. You can leave it where it is, cash it out, transfer it into your new employer’s 401(k) plan, or roll it over into an individual retirement plan (IRA). Cashing it out is almost not advisable because of big taxes and other penalties. For a lot of people, rolling a 401(k) plan into an IRA is the best choice.

Reads on to know a number of reasons why you should convert your 401(k) into an IRA:

It Allows for More investment Options

With your 401(k) plan, you are limited to a few investment choices. Usually, you can choose a few mutual funds. But, an IRA opens up a lot of investment opportunities including individual stocks, mutual funds, bonds, stocks, and exchange-traded funds. Also, you can buy and sell your holdings whenever you want. The majority of 401(k) plans limit the number of times every year you can rebalance your portfolio.

It Involves Lower Fees and Costs

If you roll over into an IRA, you could save plenty of management fees, fund expense ratios, and administrative fees that can eat into investment returns over time. A 401(k) plan offers funds that may be more expensive than the norm for their asset class. Then, the plan administrator will change you with an overall annual fee.

It Opens Up the Possibility of a Roth Account

A Roth IRA lets you pay taxes on the funds you contribute when you contribute them. However, there is no tax due if you withdraw them. Also, you don’t need to take RMDs at age 72 form a Roth IRA.

If you think tax rates will be higher when you need your IRA money, a Roth IRA might be your best option. This is also true if you will be in a higher tax bracket.

It Minimizes Complexity

Rather than juggling some former workplace retirement accounts when switching jobs over the course of your career, rolling over your plans to a rollover IRA minimizes complexity. It lets you look at an account statement and see the balance, recent performance, and investment choices of most of your retirement savings from a single account.

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