Do you have a 401k with an ex-employer? If so I am sure you have thought a time or two about whether you should rollover your 401k to an IRA. While there are many things that can play a role as to whether this is a good or bad choice for you here are a few reasons as to why you may want to rollover your 401k to an IRA.
Many 401ks have restrictions on many of the investments that are available to you. For instance, many 401ks only allow for mutual fund investments. IRAs and self-directed IRAs allow for so many more investments. You can rollover your 401k monies into an IRA and invest in things like actual real estate, gold and private placements. If you aren’t so adventurous you can still invest into things like ETFs and hedge funds. Either way, when transferring from a 401k to an IRA or self-directed IRA you have more control over what happens with your funds, especially with a self-directed IRA.
With an IRA you can find many cost saving benefits. For instance, ETFs are notorious for having low fund costs, especially compared to mutual funds. If you were to compare your 401k to most IRAs you are probably going to see higher fees with your 401k. So that may be reason enough to switch over but again, it depends on the current situation you have.
Penalty Free Withdrawals
While you can withdraw penalty free from a roth IRA it is not without its many restrictions and issues. According to the IRS rule 72t distribution you can get early withdrawals before 59.5 but once you elect to withdraw early you must continue withdrawing for five consecutive years or until you turn 59.5, whatever happens to be longer. That may be super steep depending on your age but it is still an option.
These are just a few of the reason why you may want to take your ex-employer 401k and roll it over to an IRA. Again, every situation is different and it is very important to talk to your tax attorney to make sure you are doing the best thing for your specific situation.
If you are thinking about doing a rollover from your 401k to a self-directed IRA we can help you. Remember, a self-directed IRA gives you all the benefits of an IRA but also gives you much more control and more investing potential. Tangible investments that are outside the stock market are all possible through a self-directed IRA.
Author: Nick Barker