Rolling over a 401k plan to an IRA can be a smart financial move for many individuals. Not only can it provide greater flexibility and control over investment choices, but it may also offer potentially lower fees and other benefits. Here are 9 reasons to consider rolling over your 401k.
- Potential Cost Savings LCM Capital Management can help you determine your current plan’s fees which can include: mutual fund fees, third-party administrator fees and broker fees, to see if there is a better alternative for you and your family.
- Withdrawals – Control Your Tax Withholding Early withdrawals from a 401(k)/403(b) generally require a 20% tax withholding. You get to choose how much is withheld for taxes on withdrawals from an IRA. It does not change how much tax you will owe, but you have a choice on when to pay it.
- Direct Contact Have you spoken with all your multiple mutual fund managers? At an independent RIA (Registered Investment Advisory), you can speak directly with your portfolio manager.
- Style Drift Many mutual fund managers over the years have taken great risk in concentrated positions or drifted in style to try and outperform the market. For example, you buy a fund which is categorized as mid-cap and the manager buys Large or Mega Cap stocks.
- Choices for Investment Many 401(k) fund platforms are limited to a handful of mutual funds or do not cover all asset classes or sectors of your choice. Using an independent RIA, you are not limited to a handful of options. You can help better diversify with individual stocks, bonds and ETF’s (exchange traded mutual funds).
- Forced Redemption Sales In difficult times some mutual funds may get redemption sales (participants in the same fund cashing out) which can exacerbate the downside as the fund manager must sell into a weak market. By owning your own individual bonds and stocks, you are not beholden to the whims of other investors with respect to mutual fund redemption sales.
- Simplification Many 401(k) participants have money in multiple plans because of job changes, mergers, etc. Consolidation into a single account makes it easier to manage, avoids duplication of effort and provides a clearer picture of how you are invested overall. We provide one custodian, one account statement, easy online access for balances, quarterly performance reports and easy to understand portfolio holdings.
- Roth Conversion Option By converting your 401(k) to an IRA you have an additional option for estate planning or projecting future tax consequences by secondarily converting some or all to a Roth (consult your tax professional).
- Tax Deferral Your IRA rollover continues to be tax deferred with all the above advantages and not subject to any previous employers’ fees.
Overall, there may be a compelling case for the benefits of rolling over a 401k plan to an IRA. To ensure you avoid any pitfalls, it’s important to consult with an independent RIA before making any moves.