Is it a good idea to roll a 401K into an IRA since I'm no longer at a particular company?

Question

I've been with a company for a little over three years and resigned recently. Should I roll the funds into a traditional IRA? Why or why not?

Answer 1

An IRA is the best idea. But consider which one is best. There are pros and cons to both traditional and Roth IRAs. A Roth has more benefits such as tax-free withdrawal pending you've owned it 5 taxable years, are at least 59.5 at the time of withdrawal. Also, you can always borrow against the principle without a penalty. But you will pay current income tax on contributions. Also, are making under $95,000 gross income or $160,000 combined with you and a spouse (only if you're married)? If so, then you qualify for the Roth. With a traditional IRA, you can roll it over and get instant tax savings, meaning you can roll it over without paying taxes now, although you will pay them at the time of withdrawal. Also, you will have an RMD (Required Minimum Distribution) by April of the year after you make age 70.5. With a Roth, it can continue to grow tax-free. You cannot borrow against the principle with a Traditional IRA unless its for medical purposes or educational purposes without penalty. Advice: if you have enough money outside the 401 (k) to pay the taxes on the Roth contribution, then roll it over into a Roth. If not, then the other option would be a traditional IRA. If I had enough to pay the current income tax on the Roth contribution, I would do it. It has more benefits, with the most important: tax-free withdrawal. ex. $10,000 in 401 (k), current income tax bracket-25%. You will pay approximately $2500 on the contribution with $7500 to contribute. With the traditional, it will be the full $10,000 going to work for you immediately, but no tax-free withdrawal at retirement. Like I said, pros and cons with each. Good luck.

Answer 2

It depends on how good your old 401k plan is and whether you have better alternatives. One choice is not automatically better than the other.

Does your old 401k have good investment choices? Do the funds perform well? Are the funds' fees low? If so, leave well enough alone. If you can get a better choice of funds with better performance in an IRA, then roll it over.

I rolled mine over to an IRA because my mutual fund company has a better choice of funds with better performance. However, that's just me. That doesn't make it the best choice for everyone.

Answer 3

I would say it's a good idea to roll the 401K into an IRA CD. There is no penalty/fee involved. The stock market is very unpredicatable right now, and some say a recession is looming. Unless the 401K has some cool funds that offer promise - like an energy fund, I think the money would be safer in a CD. Rates aren't great right now, but Capital One online is attractive, or maybe a local bank is offering a special.

Answer 4

If you like where your money is now, and you have a high enough balance you may be able to leave it there.
On the other hand you could roll it over into the 401K of your new employer is you choose. Or you can roll it over into an IRA if you don't want to or can not keep it in the old 401K.

Answer 5

Both your old firm and you new firm have control over the choice of custodian and manager of the 401k plan. You do not.

If you roll the money over into your own IRA Rollover you can pick the investment company you like the best. You do not have to use managers your old or new company chooses.

In essence you have the chance to have better control over how your money is managed in your own IRA rollover

Please read my profile.

Answer 6

Yes... Absolutely roll it over. You have much more control over your money in an IRA. If you choose an online broker like TD Ameritrade or Etrade, you can choose from thousands of stocks and mutual funds... As opposed to the 10 or so mutual funds you have inside your 401k.

Answer 7

It is generally a good idea because you and you alone get to choose the IRA custodian and investment for it. You don't get that flexibility with the 401(k).

Answer 8

yes. Both a 401k and an IRA contain pre-tax dollars. If you don't roll it over promptly you'll have to pay tax on it.