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Pros and cons of rolling over your 401k into an IRA


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Deciding whether to transfer your old 401k into a new IRA? Use this overview of the key pros and cons to figure out whether it's right for you.

Key takeaways

  • Transferring your 401k into an IRA helps you keep track of where your money is invested and your fees. You’re no longer tied to your employer and their 401k provider – they may be charging you excessive fees.
  • It does take a little up-front work – though less than you probably fear. In return you get to choose the type of company that manages your money.
  • If you’re a huge fan of your existing 401k and you’re allowed to keep it, then that’s an option – but make sure you know what you’re paying in fees and what investments your 401k is in.

Pros of doing a rollover

Keep track of your assets after leaving your job

While some employers let you keep your 401k account after leaving, it can be hard to keep track of what your savings are doing. Accessing your old HR / 401k portal can be a hassle, and your old HR department doesn’t have the same incentive to help you once you’re no longer an employee. With an IRA you always have access on your own, and the IRA will stay with you throughout your career.

You get to pick an IRA provider that works for you - not your company

Unlike a 401k where the company chooses the provider for you, you actually get to pick which institution to have your IRA at. So if a seamless digital experience is important to you, you can pick one of the many digital advisors that offer IRAs. If you want a brand-name institution, you can pick one of those too.

You can make sure you're not paying too much in fees

Excessive fees can erode your savings and make it harder to prepare for retirement. Unfortunately some 401k providers have high fees and make it hard to even figure out what your fees are. While some IRA providers can do the same, it’s generally easy to see what fees you’ll be paying before opening up an IRA. Rolling over your 401k is a good chance to make sure your assets aren’t being drained by hidden fees.

Your savings continue to get important tax advantages

Money that’s saved in an IRA grows tax-free until you retire – just the same as your 401k plan. You can also make ongoing contributions to an IRA if you choose. Because of this an IRA allows you to keep saving for retirement in a tax-effective way.

Cons of doing a rollover

You’d rather be watching Netflix, or really doing anything else

We feel you. If you’d rather get poked in the eye with a sharp needle than think about your retirement accounts, trust us, you’re not alone. It can seem like a hassle. But the reality is that it doesn’t really take much work to initiate a rollover. Part of our mission to help people complete their 401k rollovers quickly. We can help manage your rollover for free or contact us if you need step-by-step support.

Losing access to your old 401k if you really liked it

If you really liked your old 401k account and you’re confident the investments in it are right for you, then doing a rollover may not be worth it. Just keep in mind that you’ll have to keep track of your 401k assets as you move throughout your career which can be difficult. You’ll also need to periodically check that your old employer keeps the same 401k provider. And double check to make sure your existing 401k fees are reasonable.

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