3 Reasons to Roll 401(k) Assets to an IRA |

3 Reasons to Roll 401(k) Assets to an IRA

Many people who change employers or retire choose to leave their accumulated assets in the former employer?s 401(k) plan. Actually, they don?t always make a decisive choice to do so; they just have other priorities to deal with and may not understand or have time to explore other options ? or the advantages of doing so.

The reality is that the greatest advantage of 401(k) retirement plans is the employer?s matching to the account. Once you leave an employer, however, that advantage ends. Thereafter your money will accumulate only if your investment choices perform well.

Once you move on to a new place of employment, you may have the option to roll over your 401(k) assets to your new employer plan. However, you should also be aware of the benefits of your newfound freedom over what to do with these assets. You have the option to roll them into another tax-deferred account and invest in just about any type of investment ? or variety of investments ? using an IRA.

IRA Options
The simplest way to conduct a rollover is to a traditional IRA, where your assets may continue to grow tax-deferred but you have more options to diversify your investment choices. You also have the option to transfer assets to a Roth IRA. In this scenario, you would have to pay income taxes on the full amount rolled over (even if a portion is technically gains), but thereafter any accumulated earnings will be available tax-free during retirement (assuming you withdraw them after age 59?).

The taxes you pay on a Roth rollover may take a significant chunk out of your earnings. However, if you have a reasonably long investment timeframe (10 years or more) ahead, you may benefit from tax-advantaged growth and tax-free distributions. Note that if you pay taxes on a Roth IRA rollover with your 401(k) account proceeds, that money is deemed a distribution and subject to taxes and any applicable penalties.

Assuming you start a new 401(k) plan at your new place of employment, a Roth IRA provides ?tax-status diversification? during retirement ? wherein some of the retirement income you receive will not be taxed. This is also important in that Roth distributions do not impact the taxable status of your Social Security benefits.

Reasons to Roll
1. Lower Fees and Expenses
Employer-sponsored plans have made news recently due to new requirements for transparency regarding the fees charged by administrators ? which are among the industry?s highest account and management fees. One of the reasons funds or investments within a retirement plan charge higher fees is because they are considered ?special purpose? and may not have the asset size of comparable publicly available investment options. In contrast, the average IRA custodian, either direct or via an advisor, charges no annual administrative fee. You can potentially earn thousands of dollars more by rolling over employer plan assets based on fees alone.

For example, take the hypothetical case of a 30-year old employee who has accumulated a $30,000 401(k) balance and plans to retire at age 65. Let?s assume he earns an average annual return of 7% regardless of whether he maintains the 401(k) or rolls over to an IRA. However, the 401(k) plan has an annual fund expense ratio of 0.7% and an annual 401(k) administrative fee of 0.5%, compared to the IRA with an average annual fund expense ratio of only 0.4%. By age 65, the IRA account would return approximately $65,000 more than the 401(k) account.

Keep in mind that if you like the investments you?ve selected in your 401(k) plan, there?s a good chance you can replicate those same choices and allocations in an IRA rollover account. In this scenario, you could build substantially more wealth over time investing in the exact same holdings ? simply by reducing your fees.

2. Increased Investment Options
However, if you would like to open up your retirement assets to a larger selection of investments, rolling your plan directly to a qualified IRA gives you access to more than 15,000 mutual funds and 1,000 exchange traded funds (ETFs) on the market ? available through most advisors or fund supermarkets. You also have the option of investing in any stock, bond, or tradable security through your IRA account.

3. Better Advice
By working with an advisor of your choice, you?ll receive much more individualized advice tailored directly to your needs, your tolerance for risk, and an allocation that works in concert with your overall portfolio and financial picture.

?

Source: http://www.retirementpilotkc.com/roll-401k-assets/

joey votto the masters live mega millions winner holy thursday chris stewart evo 4g lte marlins new stadium