If you retire or change jobs, rolling over your retirement assets to an IRA can be a good move. It is a non-taxable event when done properly, gives you access to a wide range of investments, and offers the convenience of consolidating your savings in a single location.
If an objective of your IRA is to provide for your beneficiaries, you may be interested in what are called stretch provisions. These provisions, when written into your IRA plan document, will allow your beneficiaries to take distributions over their life expectancy as outlined in the Internal Revenue Code. Some stretch provisions will allow you to designate second-, third- or even fourth-generation beneficiaries, if life expectancy allows for it.
In addition to rolling over your 401(k) to an IRA, there are other options. We can help you determine which is most suitable for your specific situation. Here is a brief look at all the choices.
Leave money in your former employer’s plan (if permitted)
You may choose to leave your money where it is if the investments offered are to your liking, and there is no additional fee for leaving your money in the plan. (The typical internal expenses still apply.) It is not a taxable event.
Roll over the assets to your new employer’s plan (if available and permitted)
It’s also not a taxable event, and keeping all your money together in one place means you have a larger sum of money working for you. There is also the benefit of convenience. Keep in mind, however, that not all employer plans accept rollovers.
Roll over to an IRA
As discussed above, this is not a taxable event. There is the convenience factor of consolidating your accounts, and you will likely have more investment options. 401(k) plans usually do not have a rollover fee or termination fee.
Cash out the account
This is a taxable event, and, of course, there is also the loss of investing potential. It is even more costly if you are under the age of 59½; in addition to income taxes, there is a penalty of 10%.
You should carefully consider all of your available options and the applicable fees and features of each before moving your retirement assets.