How To Rollover Your 401(k) To An IRA

Accountancy Resources

How To Rollover Your 401(k) To An IRA


Once you are retired, rolling over your 401k or another employer-sponsored plan to an IRA can be one of the best decisions you ever make for your retirement. 401ks usually have limited investment choices and fees and expenses that IRAs do not have. Additionally, 401ks are under the control of employers while IRAs give control to the investors whom they benefit from. The tax treatment of your retirement plan is important and rolling over your plan can afford you the most favorable treatment as well.

Who can help me? What makes each company different?

Many different companies are capable of helping you roll over your 401k to an IRA.

Banks, brokerages, and fund companies can all initiate the process of rolling over your old plan to an IRA. Essentially, if a financial services company offers IRAs, then it can rollover your retirement plan for you. The breadth of companies gives you many options to choose from. Some of the most familiar names in the IRA business are Fidelity, Vanguard, Merrill Lynch, and Wells Fargo. Discount brokerage companies, such as E-trade and Scottrade, also offer IRAs in which you can rollover your old plan. All of these different companies have plans with different characteristics. Some companies offer no-fee IRAs while others offer low transaction costs. Some companies require you to make a minimum initial investment and/or make minimum contributions to an IRA. Each company has a selection of investment choices as well. Some companies may limit you to mutual funds while others offer you more freedom in choosing funds, stocks, bonds, or other asset classes. Some companies aim to drive down the costs of the IRA while others aim to offer superior services. You have to choose which attributes and company is best for you. If the many choices and numerous companies confound you, you may be best suited by getting the help of a financial advisor to make the right choices.

What Do I Need?

Once you select a company to help you rollover your 401k to an IRA, you can initiate the process in-person or online in most instances. Banks and fund companies usually have staff to help their customers open retirement accounts. Companies doing business online usually have customer service departments to help customers with their retirement accounts. The information needed to fill out an application to rollover a retirement plan to an IRA includes Social Security and bank account numbers, date of birth, address, and employment information. Once your 401k rolls over, it needs to be funded so, bank information or other funding information is needed to initiate contributions. You will have to answer questions about your investment objectives, risk aversion, income, and net worth as well. You will have to choose the tax treatment of your IRA at this point as well. Roth IRAs allow you to have your income be tax-free while your contributions are taxed at your current rate. Traditional IRAs, however, allow the opposite; your contributions will be tax-free while your distributions will not be. The key step in rollovers is initiating the rollover on the employer’s end as well. You will have to notify your former employer that you are rolling over your 401k or other plan to an IRA and fill out the necessary paperwork to do so.

I rolled over my 401k. What now?

You will have to decide how to invest your money once your plan is rolled over. Your IRA will allow you more investment freedom and a host of different asset classes will be available to you: stocks, bonds, commodities, real estate, etc. If you are not prepared to implement a plan to save for retirement, then you should get help from a financial advisor. Financial advisors are knowledgeable about different asset classes and how they interact to produce an optimal portfolio. Once your plan is implemented, it is important to update it when circumstances change.

Rolling over your 401k to an IRA is an important step for retirement. IRAs can help you to reduce your expenses, increase your returns, gain control over your investments, and reduce your risks. IRAs can help you get the best tax treatment for your retirement income as well. There are a multitude of companies offering IRAs with different positives and negatives so, do your research and speak with a professional if the choices become overwhelming.