Contributing to your employer’s 401(k) plan can create the foundation of your retirement savings. Often, your employer will offer a company match that can help you reach your retirement goals. At Idaho Medical Association Financial Services, we believe that these plans are a great tool in saving and planning for retirement.
While you still employed at your place of employment, you usually need to keep your 401k assets in their plan. However, once you change jobs or retire, keeping your money in a 401(k) is usually not the most beneficial option. Depending on your situation, transferring your retirement savings into an IRA may offer you more convenience and save you money in the long run.
As you prepare for retirement, consider these benefits of rolling over money from your employer’s 401(k) plan to an IRA.
Avoid Higher Fees
Often, company 401(k) plans have higher associated fees than traditional or Roth IRAs. Depending on your company plan, it is possible to save as much as 1% annually by rolling money over into an IRA.
However, each 401(k) plan is different. Be sure to research the fees associated with your current plan by reviewing quarterly statements. As you do so, you can determine whether or not transferring your money to an IRA would be financially advantageous.
Convenience and Flexibility
People who worked for multiple companies over their careers often leave behind a string of old 401ks. This can leave you with a variety of plans and investments that may no longer suit your current circumstances. These accounts can become burdensome to track, especially in making sure all the underlying investments are still adding value to your portfolio. An IRA will allow you to consolidate all those assets into one account.
Additionally, the investment options without 401k plans are usually fairly limited. Their investment menus are typically created to provide a diversity of investment options, but many still lack investment styles, methodologies or asset classes that would better suit your needs. Most often, a better mix of investment funds is available to you through an IRA, where most of the investable world is open to you.
If you regularly give to charity, listen up. Once you turn 70 and a half, the best way to donate to charity is through assets in an IRA. IRA funds are eligible for Qualified Charitable Distributions (QCDs), where money can be donated directly from your IRA to the charity, without having to be taxed, and it still counts towards your Required Minimum Distribution for the year. It’s not quite applicable to everyone, but when it is, it’s easily the most tax-efficient way to donate to charity. It’s powerful, but it’s only available to IRAs, and not 401ks.
Overall, the decision to rollover your money from your employer’s 401(k) plan to an IRA is based on individual circumstance. For many, however, the benefits are undeniable. As you plan for retirement, consult with a fee-only financial planner, such as Idaho Medical Association Financial Services to create a retirement plan that reflects your individual goals and circumstances.