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Have you ever wondered what to do with your 401k? One option is to roll your existing 401(k) into an IRA.

There are a lot of benefits for rolling over old 401(k)s to an IRA, here’s a few of the most important:

First – More Investment Options Available in an IRA.
401(k)s are notorious for having a limited amount of funds available to choose from. With an IRA, you open up more investment opportunities.

This helps your investments remain more diversified and helps ensure your portfolio is invested appropriately for your long term goals.

Next – Rollover Your 401(k) to Lower Fees.
Many investment options in 401(k)s have higher fees associated with them than what you would have available in an IRA. By rolling over your 401(k) into an IRA, you can save on fees for the fund selection and also administrative fees.

These highest fees are usually in the form of a fund’s expense ratio. 401(k)s are known for higher than average fees, especially if your 401(k) is with a smaller company. If you are using funds with expense ratios over 1%, you may be able to save a lot of money by moving your 401(k) to an IRA and using low cost alternative funds.

Lastly – More Flexible Withdrawal Options.
401(k)s can limit the amount of money you can withdraw and how often you can withdraw.

With an IRA, you’re free to withdraw as much money as you need, as often as you want – as often as you’re over age 59-1/2.

When we manage investments for clients we can set up automatic bi-weekely, monthly, or quarterly deposits from their Schwab investment accounts into their checking and savings accounts….(read more)

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As a working individual, you may have a 401k plan sponsored by your employer. However, if you leave your current job, you may wonder whether it is a good idea to move your retirement funds into an individual retirement account (IRA). In general, 401k rollovers make sense in certain situations, and this article will help you know when it is appropriate to do so.

First, let us understand what a 401k plan and an IRA are. A 401k plan is an employer-sponsored retirement savings account that allows you to contribute a portion of your pre-tax income to your retirement fund. Your employer may also match your contributions, and the funds grow tax-free until you withdraw them during retirement. On the other hand, an IRA is an individual retirement account that you open and manage on your own. It allows you to contribute a certain amount of pre-tax income to your account, and you can choose to invest in stocks, bonds, mutual funds, or other investment vehicles.

Now, let us consider when it is best to move your 401k funds to an IRA.

1. You have switched jobs

If you have left your job and started working for another company or become self-employed, it makes sense to roll over your 401k to an IRA. This way, you can consolidate your retirement accounts and have more control over your investments while still maintaining tax benefits.

2. You want more investment options

A 401k plan usually has limited investment options, which can hinder your investment strategy. On the other hand, an IRA provides a wider range of investment options, giving you greater flexibility in managing your retirement funds. You can choose to invest in low-cost index funds, exchange-traded funds (ETFs), or individual stocks, depending on your risk tolerance and investment goals.

3. You want to avoid high fees

401k plans often have high administrative and management fees, which can eat into your investment returns. Rolling over to an IRA can help you avoid these fees, especially if you choose a low-cost provider. You can also choose an IRA that charges no fees or commissions, making it a cost-effective option for retirement savings.

4. You want to avoid required minimum distributions (RMDs)

Once you turn 72, you are required to take RMDs from your 401k account. However, if you roll over your 401k funds to an IRA, you can avoid this requirement, allowing your funds to grow tax-free for a longer period. This can be beneficial if you don’t need the funds immediately and prefer to pass them on as an inheritance.

Conclusion:

In conclusion, moving your 401k funds to an IRA can be a smart option if you have switched jobs, want more investment options, want to avoid high fees or RMDs. However, it is crucial to seek professional advice before making any investment decisions to ensure that you are making the right choice for your retirement savings.