Rolling Over Your 401K To A Traditional IRA


Are you like millions of Americans who have an old 401k account from a previous job that is just sitting there? For many people they believe that leaving the money with their former employer until retirement is their only option. This is not correct you have many options for this major financial decision. Here is a list of the things that you can do with your 401k money after you leave a former employer.
1. Roll the money into your new employer’s 401K plan – Many times your new employer will have a 401K plan that will allow rollovers. This is a simple process the question is should you do so? Some of the advantages are there is usually no minimum investment. So if you are rolling over a small amount this could be advantageous. This will allow you to invest in several funds and not have to meet minimum investment requirements. A disadvantage is that you may limit some flexibility. There may be rules that come with participation in the new plan that you may not like. The new fund may have higher fees. This is usually the case with small plans.
2. Rolling the funds over to an individual brokerage IRA – This is a common option that many people choose. The biggest advantage is you have the most flexibility. Most brokerage accounts will offer more investment options than a employer sponsored 401K. The downside is there is usually an additional cost for all of these options. You may incur an additional charge each time you make a trade or there may be a minimum activity charge. Take a look at fees closely. Even the “no load” funds have fees. Remember these people are making a living also.
3. Roll the 401K money to a mutual fund company – You can go directly to a mutual fund company and open an individual IRA. This will usually be the low cost method. The flip side is the loss of some flexibility. They may not have all of the options you would want in their fund family. There are also minimums for each fund in many cases. This can also limit your options.


401K Rollover Options

Regardless of the option you choose, make sure and complete all the necessary paperwork in order to not be taxed as if the rollover were a withdrawal.