Can I Move My 401(k) Investment to an IRA at 60 Years Old?
You have several choices when saving money for your retirement. One popular option is a 401k plan. A 401k plan is an employer sponsored retirement plan. These plans are set up through your employer and allow you to defer some of your income into the 401k plan. This money is then invested in mutual funds to help you grow your retirement savings. As you approach your age 60, you may want to move your 401k plan to an IRA. Make sure you understand how this is done.
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Process
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In some cases you must wait until you are no longer working for your employer before you can transfer a 401k plan to an IRA. Contact your human resources department and ask for a transfer request form. This will direct your 401k plan administrator to transfer the funds from your 401k to the new IRA. You must specify the account number of your 401k as well as the account number of the new IRA.
Significance
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When you move your 401k to an IRA at age 60, you are transferring your retirement savings to an individual retirement account instead of an employer sponsored one. You may have access to investments that are not available under a 401k plan with your former employer.
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Benefits
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The benefit of moving your 401k to an IRA is that you have more control over your investments. Since IRAs can invest in more than just mutual funds, you have the ability to diversify your risk. You could invest in gold, individual stocks, annuities or real estate. These alternative investments may give you higher investment returns when compared to an investment in mutual funds.
Misconceptions
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A common misconception is that you must always wait until you no longer work for your employer before you can transfer your 401k plan to an IRA. While this is generally true, some employers do offer partial or even full in-service withdrawals. These withdrawals can be treated as transfers allowing you to transfer your 401k money to an IRA without incurring any tax liability. In-service withdrawals are set up at the discretion of your employer, so you must ask about this option.
Considerations
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While moving your 401k to an IRA comes with many benefits, it may also come with additional fees. If you move your 401k to an annuity IRA, or you purchase mutual funds inside of an IRA, you may incur a hefty surrender charge on your new IRA money. A surrender charge is a charge that acts as a penalty to encourage you to hold onto investments for long periods of time. If you withdraw money from your IRA prior to the end of your surrender period, you may incur a penalty based on the amount of your withdrawal. These penalties are very common with the purchase of a mutual fund or an annuity and can extend for seven to 10 years or more. Since moving your 401k to an IRA is not mandatory, consider just leaving your money in your 401k after age 60. This way you can access your retirement savings, when you'll likely need it the most, without incurring any withdrawal penalties.
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