How to Perform 401k to IRA Rollovers

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Discover how to perform a 401k to IRA rollover and whether or not it is the best choice for you.


While it may seem simple enough, you need to be aware of a few things when rolling over a 401k to IRA.


401k to IRA rollovers are not for everyone, so make sure you read through these tips before doing so.

  • The actual procedure for rolling over a 401k to an IRA is actually fairly painless. All you need to do is contact a reputable brokerage house like Vanguard or Schwab and they will walk you through all of the paperwork. Naturally they will want you to rollover your account to them but you need to know when not to first.

  • Consider fees. Fees are the biggest factor that you need to consider when contemplating a switch from a 401k to an IRA. It really is not worth switching unless your 401K is going to have higher fees. Take a close look at the costs of the rollover as well as the costs to maintain either account. Create a cost benefit analysis for each retirement vehicle.

  • The great thing about IRA's is the ability to diversify. Typically with 401k's you are limited to the investment types that your employer provides. In self directed IRAs you are allowed to invest in a whole host of products from gold to stocks to mutual funds.

    Being able to diversify allows you to better weather the tough times when the stock market drops.

  • Avoid transfer fees. This is much easier than it sounds. Having your old employer switch your funds directly to a new institution will save you from all sorts of hassles and potential issues.

    You do not want to withdraw the funds and transfer it yourself. Hire a professional brokerage firm that will work with your employer and help walk you through the process.

  • Don't relocate employer stock. If you own stock in the company you are employed in, you are given special tax benefits. However, if you move this stock to another 401k or IRA you may find that certain options may get exercised which could potentially cause you to incur a tax gain. Discuss it with your accountant and broker first.

  • Consider at what age you want to retire. There are age limits on when you can start to draw an income from your retirement funds. A 401k plan allows you to take penalty-free withdrawals beginning at age 55. An IRA does not allow you to start withdrawals until the age of 59 1/2.

  • IRAs have added benefits for your beneficiaries. If you happen to leave money in your retirement accounts when you pass away, 401k accounts can cause a large financial burden. An IRA allows you to spread out the distributions, lessening the tax burden on your beneficiaries.

  • Before you decide to rollover your 401k to an IRA, be sure to keep all of the above factors in mind. There are a lot of pros and cons to having one over the other. Just make sure that you know which one is best for you.

    Be sure to check out my profile and look around while you are here for other great how to articles.

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