3 Options for Rolling Over Your 401(k) to an IRA
There are many reasons why you may be considering rolling over your 401(k) to an Individual Retirement Account (IRA). First, you may be looking to expand your options for investing. Second, you can consolidate multiple 401(k)s into one investment platform for saving on investment fees and lastly you have control of your investments and not your previous employer.
Regardless of the reason, choosing the best fit for your investment will require understanding the options and their available benefits. Below we have compiled a helpful guide to choose which option may be best for your unique needs:
Traditional 401(k) to Traditional IRA
Your options after leaving a place of employment are:
- Cash out your 401(k)
- Leave the money in the 401(k)
- Rollover to your new employer’s plan
- Rollover to an IRA
A rollover to a traditional IRA has four main benefits.
One large advantage is that tax-deferral is continued with the IRA. An IRA also has more investment options to help with your risk tolerance and allows you to put your money into nearly any investment. IRAs are also good for combining all previous employer’s plans, instead of holding separate accounts. This also makes it easier when you must take out your RMD’s.
Traditional 401(k) to Roth IRA
Both Roth 401(k)s and Roth IRAs require taxes to be paid upfront on your contributions and all withdrawn are tax-free in the future. Rolling over to a Roth IRA is another possible option if you are no longer with the same employer.
Roth IRAs are ideal for younger, lower-income workers who would benefit from decades of compounded growth. Also, doing a 401(k) rollover to a Roth IRA makes sense when you expect to pay higher taxes in retirement or if you feel taxes will be higher in the future.
Traditional 401(k) to IRA
To roll your traditional 401(k) into an IRA, you typically must not be working for your employer anymore. Some employers do allow this process while you are still employed with the company after 59 ½ years of age, it’s called an in-service rollover amount. Not all 401(k)s are the same, so check with the plan administrator to be sure.
Rolling over your 401(k) to an IRA is a good idea and then we can covert a portion of the IRA to a Roth IRA and pay the taxes as we go. If you expect to be paying higher taxes in coming years, or if you think taxes are going up in the future you are paying today’s taxes on sale.
Other benefits include if you only plan to make withdrawals when you’re ready (not at age 70-1/2) or you are expecting to have a higher salary in coming years, or you would like to pay taxes on the plan upfront.
However you decide to roll over your retirement savings, you will need to speak to a retirement advisor to help with your decision. They are professionals who will advise you based on your specific needs and help you understand taxes and fees associated with each plan.
At Macino Financial Services we assist our clients with this rollover or Roth conversion process from the very beginning until the end and it’s sure to make your retirement relaxing. For more retirement tax tips, seek help from the experts at Macino Financial Services. Call 419.491.0909 today to schedule your free retirement assessment.
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