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The Benefits of Rolling Over Your Retirement Assets Into an IRA

The Benefits of Rolling Over Your Retirement Assets Into an IRA

May 19, 2021
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Whether you are preparing to retire or leave a current employer, it's time to take charge of the retirement assets you have saved thus far. At this moment, you have four options:

  • Cashing out (keep/spend the money)
  • Leaving your assets in your previous employer's plan if permitted
  • Transfer the distribution directly to a new employer’s plan if permitted and applicable
  • Rolling over into an individual retirement account (IRA)

For most people, rolling over into an IRA can provide the most benefits and promising financial opportunities. Below, we explain these benefits in hopes of helping you make a sound financial decision. 


  • More Investment Options: 


Firstly, a 401(K) plan is generally limited to offering a few mutual funds, equity funds, and bonds as investments. With an IRA, the investment pool is much larger. These include but are not limited to individual stocks, mutual funds, annuities, unit investment trusts (UITs), and exchange-traded funds (ETF's). Additionally, unlike a 401(K) account that restricts how often you can buy or sell your investments, an IRA allows you to buy or sell whenever you'd like. 


  •  Lower Fees: 


Although fees differ amongst 401(K) plans, an IRA could potentially have lower fees than your current employer's retirement account. Management, administrative, and annual fees all add up over time. Although an IRA account isn't free of fees, it gives you more control over how much you invest. 


  • Roth IRAs


Rolling over to an IRA gives you the option to consider a Roth account. A Roth IRA account pays all taxes on the funds you contribute instantly. Consequently, there is no tax when you withdraw funds. Therefore, a Roth account might be the best financial option if you think you will be in a higher tax bracket when you plan to withdraw your funds.  


  • Tax Distributions: 


With a 401(K) plan, the Internal Revenue Service (IRS) withholds 20% of distributions for federal taxes. Unlike a 401(K), an IRA gives you the option to choose how much to have withheld. Therefore, you don't have to diminish your account faster than necessary. 


  • Estate Planning: 


If a 401(K) is passed on to your beneficiary, they will likely be paid all at once, resulting in large inheritance taxes. Inheriting an IRA also has its regulations, but in the end, your beneficiary will have more payout options that fit their current financial status.


Ultimately, many benefits come with rolling over from a 401(K) into an IRA. However, financial decisions aren't one size fits all. When deciding on what to do with your retirement assets, there are many factors to consider. Some of the factors include the specifics of your current 401(K) plan, investment options, fees, age, and financial goals. That's why our financial advisors at U-Vest® Financial offer individualized financial strategies that consider your specific circumstances. Give us a call to start taking charge of your investment assets today.

This article is meant to be general in nature and is not intended, and should not be construed as personal advice of any kind. Please consult your financial advisor prior to making financial decisions. You may take nontaxable withdrawals before age 59½ if a Roth IRA is held for at least five years and you meet certain distribution guidelines. Otherwise, an early withdrawal before age 59 ½ may be subject to taxes and a 10 percent federal tax penalty. Please discuss with your tax advisor. Michael P. Davino, CFP® is a Financial Advisor with U-Vest Financial®, a separate entity from Waddell & Reed and can be reached at 850.300.7055. Waddell & Reed, Inc., Member SIPC. (05/21).