The Best 401(k) Rollover Ideas
A 401k plan does not need to be kept when you retire. Rolling over your plan benefits gives you control over your retirement savings and may give you benefits, which include decreased taxes and increased investment options. Before you roll over your 401k plan, make sure you have an understanding of when this option makes sense.
The purpose of a 401k plan rollover is to take advantage of either increased investment options in another 401k or IRA or the reduction in taxes that results from converting your traditional 401k plan to a Roth plan.
Your rollover should result in an increase in either retirement income or additional investment options or some other benefit that is not available in your current plan.
401k to 401k
Convert your 401k plan to another 401k plan if you change employers and you don’t want to lose the benefits of a matching contribution from your employer. This move may also be done to consolidate money you have from other employers into one plan. Your new 401k plan may also have lower fees.
401k To IRA
A 401k to IRA is a good idea when you don’t want your retirement plan tied to a single employer. For example, if you move frequently, or you work seasonally for several employers or you don’t receive a matching contribution from an employer, an IRA gives you more control over your funds.
You may also have a broader range of investment options available in your IRA.
401k To Roth
Convert your 401k plan to a Roth if you want to eliminate future taxation on your retirement savings. This option is ideal when future tax rates are higher than the tax rates when you were working. It requires that you be forward looking and your expectation must be that your tax rates rise in the future.
You won’t need to worry about future taxes if you are right, and you’ll end up with more income than if you had kept your traditional 401k plan. You do have to pay tax on all of the money you convert, however after this tax is paid no future taxes are due.