Once you leave a job, are laid off or get fired you should
roll over your 401(k) into an IRA. IRA
stands for “individual retirement account,” which has similar rules to a 401(k)
account. By transferring your 401(k) to
an IRA you will delay the taxes on this tax deferred account until you take a
distribution at retirement. There are
opposing arguments from many consultants regarding whether you should keep your
401(k) with your old company or move it to your new company 401(k). In my opinion, moving and possibly
consolidating your 401(k) into an IRA account is the best strategy.
Moving your 401(k) to an IRA is your best option because
you will be able to obtain an account that offers lower fees, no trading restrictions, better advisory
options and more investment choices. In
an IRA you will have access to stocks, bonds, mutual funds, ETFs (exchange
traded funds) and money managers that are not available in the typical retail
401(k) account. This increase in
investment choices and professional advice will improve your chances of
building wealth towards a successful retirement.
The largest advantage of rolling your 401(k) into an IRA is
reducing your expenses. Not all 401(k) and IRA plans have high internal
expenses, but many do. While the majority of 401(k) rollovers are moved into
mutual funds, you may have the option of rolling your plan into a self-directed
brokerage IRA. By working out a reasonable fee schedule with your advisor using
low-cost products such as index and exchange-traded funds (ETFs) will be your best
decision. The impact of these high fees is often overlooked by investors, and
eventually can lead to under-performance of your account as the higher fees work
against your hard earned returns each year.
Your next question may be what is an IRA or Individual Retirement Account and how it compares to a 401k? Below is a great explanation from Sal Khan, Founder of the Khan Academy, comparing the difference between a 401 k and an IRA.Disclaimer: This writing is for informational purposes only and does not constitute an offer to sell, a solicitation to buy, or a recommendation regarding any securities transaction, or as an offer to provide advisory or other services by Charles Towne Capital, LLC in any jurisdiction in which such offer, solicitation, purchase or sale would be unlawful under the securities laws of such jurisdiction. The information contained in this writing should not be construed as financial or investment advice on any subject matter. Charles Towne Capital, LLC expressly disclaims all liability in respect to actions taken based on any or all of the information on this writing. Please see a more detailed disclaimer at the bottom of this page.
