A 401k rollover to Individual Retirement Account (IRA) situation usually denotes a movement from one employer to another. Instead of en-cashing the 401k account, the recommended choice when you decide to switch employers is to rollover your 401k to your IRA. The IRA is an account which helps you to lower your investment related expense and can give you more choice in investment opportunities.
Having an IRA can be advantageous in many different ways. It is a good option to manage your investment portfolio and saving on administrative and management cost. With an IRA, you can develop your investment portfolio according to your own risk appetite levels. In addition to that you can also choose your own administration and custodian for the account.
However, having a 401k rollover to IRA does have its own disadvantageous as well. One of the biggest negative for this is that the account can be used to pay off your debts should you get into a bankruptcy situation and the amount is higher than 1 million. A traditional 401k account cannot be touched in such a scenario. Another big disadvantage is the IRA mandates that you take periodic distributions when you reach 70 years old even if you are working whereas the normal 401k does not have such stipulations.
The 401k rollover to IRA does have some guidelines which must to be clarified. The first is that the 401k rollover can be put into any of the three different accounts rollover account, roth IRA or traditional IRA. The second rule is that the account can be cashed out anytime but with the accompanying fines and fees. The third rules states that any loans due must be settled within 60 days to the 401k rollover to IRA.
It is very easy to do a 40k rollover to IRA. You just need to open an IRA account with a financial institution and inform your employer about the change so that the check can be made out to the financial institution. Once the fund is transfer, you can start investing with the IRA.
- 401K Rollover To Roth IRA: You Better Make A Move Now (2010taxes.org)
- Advantages of a Rollover 401k (2009tax.org)