401k to IRA Rollovers
What are 401k to IRA rollovers? A rollover is where you transfer 401k assets to an IRA account or another 401k plan after leaving an employer. You are not required to roll the 401k over after leaving a company. You can leave it in your old employer's 401k plan. Note: The real way name is "401(k)," but, for simplicity's sake, I will call it "401k." Why would you want to do rollover? - 401k plans usually charge significant fees. There are plenty of no fee IRAs available and when you leave an employer this may be your best option.
- The options in your employers 401k plan may be poor. For example, if they have a lot of funds with expense ratios above 0.4%, I would look elsewhere.
- You may understand investing well enough to control your own asset allocation. Rolling over to an IRA will give you the freedom to have a wider variety of investing options.
What are the disadvantages of rolling a 401k over to an IRA?- You need to watch out for penalties and fees. If you can, have your 401k sent directly to your new investment company. If you can't have it sent directly to your investment company, then the 401k will have to be sent to you. Once you receive the funds, you will have 60 days to put it in an IRA account or you will be subject to significant penalties.
- Sometimes the funds within a 401k have expense ratios lower than what you could get as an individual.
- You can't borrow against the IRA like you can a 401k.
- You need to watch out for extra fees from the new institution for the transfer.
- If retired, penalty-free 401k withdrawals can be made at 55, but its 59 1/2 for IRA's.
I want to roll over my 401k. Where should I rollover to? If you've seen a lot of my other pages, it should come as no surprise to you that I recommend Vanguard. I'm not getting paid by Vanguard. I do use them and enjoy their rock-bottom expense ratios. I want to pay as little as possible for my investments. I recommend one of their target retirement funds for ease of use, simplicity, and low fees.
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