As some of our clients near retirement, they often ask whether they should roll their 401(k) (or 401(k)s) into an existing or new IRA.

The answer is (as it so often is) – maybe.

There are pros and cons to such a rollover, which should be weighed in light of your individual circumstances and needs.

Potential Benefits of an IRA Rollover

• • Wider variety of investment options – while this is not always the case, usually an IRA offers more choices than an employer-qualified plan to allocate your assets.
  • Fixed income choices – 401(k) plans generally have limited bond or annuity options for investment; it may well be that, once you retire, you will want a more significant portion of your assets invested in fixed-income funds. An IRA’s fixed-income investment options are only limited by your IRA custodian and usually are far more diversified; therefore, you may find better fits for your needs with an IRA.
  • Consolidation of assets – research shows that baby boomers may change jobs as many as twelve times over their careers. It is often a good plan to consolidate your retirement assets into a single account – and if you haven’t done this before retirement, this might be the time to do it. It is much easier to keep track of a single account that provides a total picture of your retirement funds than to monitor a dozen or even three or four accounts.
  • Control over withdrawals – some 401(k) plans allow only full-account withdrawals upon the participant’s termination from the plan. IRAs provide the option of regularly scheduled or at-will withdrawals without penalty once you are over age 59½. However, there are some benefits with regard to withdrawals from your 401(k) assets, such as leaving them where they are – see below.

  Potential Benefits of Leaving Your 401(k) Where It Is

  

  • Different age-eligibility for penalty-free withdrawals – if you are retiring after reaching age 55, but before you are 59½ – or if you would like the ability to make penalty-free withdrawals during those 4½ years – your 401(k) may allow you to withdraw funds without incurring the 10% early-withdrawal tax penalty under IRS code section 72(t) In addition if you had planned to retire at age 70, but find yourself unready at that point to give up your occupation, you can continue to contribute to your 401(k) – unless you own 5% or more of your employing company – until you retire, and you need not take required minimum distributions (RMDs) while you are still working. An IRA has no such flexibility regarding early withdrawals and RMD age requirements.
  • Legal protection of assets – if you are facing a lawsuit, ERISA rules protect assets in an employer-sponsored retirement plan from creditors. IRA assets have some protection, but not as much as a 401(k) plan, and the level of protection can vary by state.

   

  Another factor to consider is the fees on your existing 401(k) and any IRA you contemplate rolling that account into. While IRAs will sometimes have lower costs, this is only sometimes the case, mainly if your 401(k) plan is with a larger employing company. It pays (in savings) to look closely and carefully at the costs of all plans available to you.

  Before you decide – and before retiring – please consult your virtual CFO or other trusted financial advisor. S/he will listen to you, understand your needs and goals, review your account(s) – both existing and contemplated – and guide you toward the best choices – because the right decision for one person isn’t always in another’s best interest. Each person is unique, as are their family, financial situation, and goals, and your financial advisor knows that. S/he can custom-tailor a plan for your retirement – one that fits your needs.

  If you are wondering whether you should roll your employer-sponsored retirement plan into an individual retirement account, please get in touch with Rigby Financial Group – we are at your service. And we never take a one-size-fits-all approach. We are here to help you – as the unrepeatable individual that you are and that no one else ever can be.

  Please click here to email us directly – let us know how we can help.

  Until next time –

  Peace,

  Eric