401(k) Rollover Considerations

Rollover Decisions: When to Move Your 401(k) to an IRA and When to Stay Put

By Kit Lancaster, CFP® at Sterling Edge Financial

Making the decision to rollover your old 401(k) to an IRA managed by your investment advisor or to keep it within the 401(k) plan can significantly impact your financial strategy and retirement planning. Each option offers unique advantages, and the right choice depends on your personal financial situation, investment goals, and the specifics of your existing 401(k) plan and potential IRA. Here are five reasons to consider rolling over your 401(k) to an IRA, along with three reasons you might want to keep your retirement savings in a 401(k).

Five Reasons to Rollover to an IRA

1. Broader Investment Choices: Unlike a 401(k), which typically has a limited selection of investment options, IRAs often provide a much wider array of choices including stocks, bonds, ETFs, mutual funds, and sometimes even alternative investments like real estate or commodities. This diversity can allow for a more tailored investment strategy that better aligns with your personal risk tolerance and financial goals.

2. Potential for Lower Fees: IRA platforms frequently offer investments with lower expense ratios compared to those available in many 401(k) plans. Reducing the fees you pay can significantly impact your long-term growth due to the compounding effect on your savings.

3. Easier Consolidation: Managing multiple retirement accounts can be cumbersome and complex. Rolling over old 401(k)s into a single IRA can simplify your finances, making it easier to track your investments and make adjustments as needed.

4. Advanced Estate Planning Benefits: IRAs can offer more choices in terms of beneficiary designations and distributions. This flexibility can be advantageous in estate planning, helping you more effectively manage how your assets are handled after your death.

Three Reasons to Keep Your 401(k)

1. Strong Creditor Protection: Generally, 401(k) plans offer greater protection against creditors than IRAs. This can be a critical advantage if you work in a profession with a high risk of lawsuits or if you're concerned about protecting your assets from potential creditors.

2. Loan Options: Many 401(k) plans allow participants to take loans against their retirement savings. This feature can be useful in emergencies or when you need access to capital without the tax implications of a withdrawal.

3. Lower Administrative Responsibilities: For some investors, especially those who prefer a hands-off approach, the simplicity of a 401(k) can be appealing. 401(k) plans are typically administered by your employer, reducing the burden on you to manage the account.

Making the Right Choice

Deciding whether to roll over your 401(k) to an IRA or to keep your funds in the 401(k) plan involves weighing these pros and cons in the context of your overall financial strategy. It's important to consider factors such as the specific features of your current plan, your investment goals, and how close you are to retirement.

To explore what's best for your unique situation, consider speaking with a financial advisor who can provide personalized advice based on your financial circumstances and goals. At Sterling Edge Financial, we are dedicated to helping you navigate these choices, ensuring that your retirement planning aligns with your long-term financial aspirations.

For more insights and personalized guidance, feel free to reach out to us at Sterling Edge Financial.

Disclosure: The information provided here is for general informational purposes only and should not be considered an individualized recommendation or personalized investment advice. The investment strategies mentioned here may not be suitable for everyone. Each investor needs to review an investment strategy for his or her own particular situation before making any investment decision.

Registered Representative, Securities offered through Cambridge Investment Research, Inc., a Broker/Dealer, Member FINRA/SIPC. Investment Advisor Representative, Cambridge Investment Research Advisors, Inc., a Registered Investment Advisor. Fixed insurance offered through James K. Lancaster. Cambridge and Sterling Edge Financial are not affiliated. Cambridge does not offer tax advice.