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Rolling a 401(k) into an IRA: What You Need to Know

January 14, 2025

 

Rolling a 401(k) into an IRA: What You Need to Know

If you’ve recently changed jobs, got laid off, or are looking to take more control over your retirement savings, rolling your 401(k) into an IRA could be a smart move. Here’s why and how to do it:

Why Roll a 401(k) into an IRA?

  1. More Investment Options: IRAs generally offer a wider variety of investment choices compared to most 401(k) plans. With an IRA, you can invest in individual stocks, bonds, mutual funds, ETFs, and more.
  2. Consolidation: If you have multiple 401(k) accounts from previous employers, rolling them into a single IRA can help you streamline your retirement savings, making it easier to manage.
  3. Potential for Lower Fees: Some 401(k) plans have higher administrative fees than IRAs. By rolling your 401(k) into an IRA, you might be able to reduce fees and save more for retirement.
  4. More Control: With an IRA, you can have more control over your investment strategy, giving you the flexibility to align your portfolio with your financial goals.

Steps to Roll Over a 401(k) into an IRA

  1. Choose an IRA Provider: Research different IRA providers to find one that offers the investments, fees, and services that suit your needs. You can choose a traditional IRA or a Roth IRA, depending on your tax situation and retirement goals.
  2. Open an IRA Account: Once you’ve selected a provider, open an IRA account. This process is typically straightforward and can be done online.
  3. Request the Rollover: Contact your 401(k) plan administrator to initiate the rollover process. They will provide instructions on how to transfer the funds. You can choose between two types of rollovers:
    • Direct Rollover: The funds are transferred directly from your 401(k) to your IRA. This method avoids taxes and penalties.
    • Indirect Rollover: The funds are sent to you first, and you’ll need to deposit them into an IRA within 60 days to avoid taxes and penalties. Be cautious with this method, as failing to meet the deadline could result in tax consequences.
  4. Review Your Investments: After the transfer is complete, review your IRA’s investment options and consider reallocating your portfolio to match your retirement goals.

Things to Keep in Mind

  • Tax Implications: Rolling over a 401(k) to a traditional IRA is usually tax-free, but if you’re rolling into a Roth IRA, you’ll owe taxes on the amount you convert.
  • Required Minimum Distributions (RMDs): With an IRA, you’ll need to start taking required minimum distributions (RMDs) once you reach age 73. However, if you’re still working, you can delay RMDs from your 401(k) if you’re still employed by the company that sponsors your 401(k).
  • Check for Fees: Some 401(k) plans charge exit fees, while others may not. Be sure to check with your 401(k) plan administrator about any potential costs involved in the rollover process.

Final Thoughts

Rolling your 401(k) into an IRA can offer more flexibility, control, and a broader range of investment options for your retirement savings. However, make sure to carefully consider the tax implications and fees associated with the process. If you’re unsure about the best move for your situation, hit contact us on our website to set up a free consultation for help making an informed decision.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

 

Michael Gimlin Jr.

Financial Advisor

LPL Financial

716-839-1434

Michael.gimlinjr@lpl.com