When you deposit your 401 (k) money into an IRA, you avoid immediate taxes and your retirement savings will continue to rise in tax terms. An IRA can also give you more investment options than most corporate 401 (k) plans. You have more control over your money and can buy and sell anytime. If the investment options in your old 401 (k) aren’t as good, you may be able to get better investment options by switching to a rollover IRA
.
In this situation, you might want to transfer pre-tax money back into a 401 (k) so that you only have money left in the IRA after tax. If that’s you, you can do so through a Roth IRA conversion, but you’ll have to pay taxes if you convert money before tax. IRA providers may also offer a wider range of investment options and services than your old or new employer-sponsored plan. The purpose of a rollover IRA is to give you the option to transfer funds from your old 401 (k) to an IRA, where you may have more investment
options. There are important factors
to consider when transferring assets to an IRA or a company retirement account, or when keeping assets in an employer retirement account. There are a few reasons why you might want to convert a traditional IRA to a 401 (k). However, keep in mind that you can only do this if your company plan accepts inbound transfers. That gets dicey when your IRA includes money both before and after tax based on previous contributions and transfers. If you have a Roth in your 401 (k), remember that these accounts are subject to RMDs, while Roth IRAs
aren’t.
The big advantage of traditional 401 (k), s, and IRAs is the ability to defer taxes until retirement. With an IRA, you must take RMDs at 72, even if you’re still working, but you can choose to take them from any or all of your traditional IRAs. This is because a 401 (k) is financed with pre-tax dollars, while a Roth IRA is financed with after-tax dollars. Converting your old 401 (k) into a rollover IRA on the right brokerage platform gives you more options to invest in
.
If your plan includes a specific investment that isn’t available through an IRA and is an essential part of your investment strategy, that may be a reason for you to stay there. It is often overshadowed by rollovers in the other direction 401 (k) to a rollover IRA, as they are more common.
