When you leave a job, rolling over your 401(k) into an IRA or a new employer’s 401(k) plan can offer several advantages:
More Investment Options: Many employer-sponsored 401(k) plans have a limited selection of investments. Rolling over your 401(k) into an IRA typically opens up a broader range of investment choices, giving you more control over your portfolio.
Consolidation of Accounts: If you have multiple retirement accounts from different employers, consolidating them into one IRA can simplify your financial management and reduce paperwork. This can make it easier to track performance, contributions, and manage your investments.
Avoiding High Fees: Some 401(k) plans have high management fees or limited investment options, which can eat into your returns over time. By rolling over to an IRA, you can often find lower-cost investment options.
Continuing Tax Advantages: Both 401(k)s and IRAs offer tax-deferred growth, meaning your investments can grow without being taxed until you withdraw them. A rollover preserves this tax-deferred status, and you can continue growing your savings for retirement.
Control and Flexibility: IRAs provide more flexibility in terms of investment options and withdrawal rules. With a 401(k), you may be restricted to the plan’s rules. In an IRA, you have greater control over how and when you take distributions.
Avoid Required Minimum Distributions (RMDs): While you must take RMDs from a traditional 401(k) starting at age 73, IRAs allow you to delay RMDs if you are still working (under certain conditions).
Potential for Roth Conversion: If you're eligible, you can convert your 401(k) into a Roth IRA, which offers the advantage of tax-free withdrawals in retirement. This is not always possible with a 401(k) plan, and rolling over gives you this option.
Before making a decision, consider any fees or restrictions with your current plan, the new employer’s 401(k), or your rollover options. It can be helpful to consult a financial advisor to make sure the rollover aligns with your overall retirement strategy.