Have you recently left your job? If you had a 401k with your former employer, you will want to consider rolling the money over into an Individual Retirement Account (IRA). When you have money in a 401k, the 401k plan has rules that all participants must follow. These rules can affect the growth of your money. Here are four reasons why you should consider rolling over from a 401k to an IRA in order to gain more control over your investments.
1. A 401k plan will have limited investment options. Generally a 401k has a couple dozen capital investment options. The reason for the limited investment options is the cost of adding additional investment options to the plan. A 401k plan is a company benefit that costs the company money. The more options a company offers in the plan, the more money it cost the company. Within an IRA, you have unlimited investment options. Having unlimited investment options is important for proper investment diversification.
2. In a 401k, the primary beneficiary is the spouse. The only way to remove the spouse as the primary beneficiary is to have the spouse sign a waiver. This is fine for most people, but if someone is going through a separation and wants to remove the spouse as beneficiary, the spouse might not be willing to do so. Within an IRA, the IRA owner can designate whoever they want as the beneficiary.
3. There can be forced sale of investments within a 401k. Each year a company will review the investments in the 401k plan. If the company wants to change the investment options in the plan, it will move the money from the investment they are removing from the plan and put it into another investment. You as the owner of the 401k plan have no say in this matter. In an IRA, you choose which investments to put the money into and no one has the authority to sell your investments.
4. 401k plans may have limited withdrawal options. Whether you need money for an emergency or are taking required minimum distributions, the 401k plan may offer you limited options for withdrawal. The 401k plan rules might only allow distributions at certain times of the year, may not offer electronic transfer, and may even charge you a fee for withdrawal. IRA accounts offer you distribution options such as bank wire, electronic fund transfer, and overnight checks, making it easy for you to get your money when you need it.
IRA accounts offer you more flexibility and more control. A rollover does not cost you anything and is a tax free transfer of assets. If you have a 401k plan with a former employer, you should highly consider rolling the money over into an IRA. If you have questions about some potential trading solutions, you may want to contact an advisor to help you out.
This has been a guest post from James. For more tips on investing and buying things at a discount visit shortroadtoretirement.com
My name is Derek, and I have my Bachelors Degree in Finance from Grand Valley State University. After graduation, I was not able to find a job that fully utilized my degree, but I still had a passion for Finance! So, I decided to focus my passion in the stock market. I studied Cash Flows, Balance Sheets, and Income Statements, put some money into the market and saw a good return on my investment. As satisfying as this was, I still felt that something was missing. I have a passion for Finance, but I also have a passion for people. If you have a willingness to learn, I will continue to teach.