Advantages to Rolling Over a 401(k) to an IRA

What Are the Advantages of Rolling Over a 401(k) to an IRA?


Written by John Rothans

Nov 4, 2020

Social Security, personal savings accounts, stocks, bonds, and more—many roads can help take you into your golden years. Do you have to pick just one route? You don’t. You can have multiple retirement accounts, like a 401(k) and an IRA.

Many people roll some of their 401(k) money over to an IRA because they want more asset options and more control over the account. Plus, moving money to an IRA could help you streamline your retirement portfolio. Here we explain the advantages of rolling some funds into an IRA.

What Is the Difference Between a 401(k) and an IRA?

A 401(k) and an IRA are both retirement accounts. But they differ in one fundamental way: You open a 401(k) through an employer, which often will match your contributions, but you open an IRA on your own—with your own money—through a bank or broker. Also, an IRA typically gives you more asset options than a 401(k) does, and a 401(k) provides higher contribution limits over a year’s time than an IRA does.

What Are the Benefits of Rolling Over Part of a 401(k) to an IRA?

Rolling over part of a 401(k) to an IRA can deliver several advantages. Financial planners at Bogart Wealth highlight the following benefits:

  • Depending on the bank or broker, an IRA can come with lower fees than a 401(k).
  • An IRA can impose less rules than a 401(k).
  • Payouts from an IRA are easier to carry out after you die than payouts from a 401(k) are. Certain payout situations can simplify estate planning.
  • An IRA enables you to consolidate 401(k) accounts from several employers into a single account, so you can continue saving for retirement wherever your career takes you.
  • An IRA often supplies more asset flexibility than a 401(k) does.

It’s the asset flexibility that is perhaps the most attractive benefit of rolling over some of your money from a 401(k) to an IRA.

Usually, a 401(k) plan is focused on buying shares of mutual funds, and it’s an employer’s responsibility to run the plan. The employer decides “who is eligible for the plan, how much and when they can contribute, how much the employer will contribute to the plan, what [asset] options you will have, how often you can reallocate your assets, hiring the vendors necessary to run the plan, and what features the plan will have,” 401khelpcenter.com explains. That doesn’t leave very much control in your hands.

But with an IRA, you can take control of your financial future. You choose the assets. Add mutual funds, stocks, bonds, exchange-traded funds (ETFs), and even alternative assets.

Among the alternative assets that you can put in an IRA are precious metals (gold, silver, platinum, and palladium), real estate, cryptocurrency, water rights, mineral rights, and livestock. In some cases, you might consider an IRA known as a precious metals IRA, which includes gold, silver, platinum, or palladium—or a combination of those metals as long as they meet the requirements set forth by the IRS. Precious metals IRAs also are called gold IRAs.

What Types of Retirement Accounts Do Americans Have?

The 401(k) remains the most popular employer-sponsored retirement plan in the U.S. Other employer-sponsored options include defined benefit pension plans, 403(b) plans, 457 plans, SIMPLE IRA plans, and SEP IRA plans.

The most common retirement accounts that are not sponsored by employers are the traditional IRA and the Roth IRA. The main difference between these two IRAs is how contributions and distributions are taxed. Traditional accounts are funded with pretax dollars, while Roth accounts are funded with post-tax dollars.

Ready to roll some 401(k) funds into an IRA, especially one that can include precious metals? Call U.S. Money Reserve. You’ll receive a free IRA consultation from an experienced Account Executive.


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