Three Reasons to Transfer to an IRA from a 401(k)

RetirementIf you’re close to retirement age, or are planning to leave your current job, you’re probably wondering what to do with your 401(k). Should you leave it at your current workplace? Or should you just cash it out? Neither are great options. For example, simply cashing out your 401(k) is not ideal, as you will most likely lose money due to taxes. What you need is a third option: Transfer your 401(k) to an Individual Retirement Account (IRA). If you transfer to an IRA, you will be saving yourself not only time, but money and frustration too. If you still need convincing, just take a look at these three reasons why transferring to an IRA from your 401(k) is an excellent option for you.

1. Save some dough on taxes

If you choose to transfer to an IRA, you will have to select what kind of IRA is best for you. There are two types: Traditional IRA and Roth IRA. Both options will help you save on taxes in different ways, and which type you choose depends on your financial situation. A Traditional IRA allows you to make contributions that, depending on your income, may be tax-deductible. Your earnings in a Traditional IRA can grow, tax-deferred, and after age 59.5, withdrawals are taxed as current income but are penalty-free.

On the other hand, a Roth IRA allows you to make contributions that aren’t tax-deductible. Your earnings in a Roth IRA can grow tax-free, and your contributions are always tax-, and penalty-, free. After age 59.5, and after the account is five years old, your earnings become tax- and penalty-free. Check first to see if you are eligible for Roth IRA – if your income is above a certain level you won’t be eligible.

2. Open doors to investment

Usually your 401(k) has few funds available, and therefore diversification is limited. However if you transfer to an IRA, you’ll have a wide array of investment choices available. From stocks, to bonds, to mutual funds, you’ll have many more options in which to invest your money.

3. Manage your account with ease

By transferring to an IRA, you’ll have an easier time managing your account. If you transfer to an IRA and your spouse has an IRA as well, you can combine the holdings and have them all in one place. When you rebalance, it’ll be easier to do so. You’ll be able to look at all your family’s holdings, and keep track of your investments with ease.

Ready to get started? If so, or if you still have questions, we encourage you to contact us via phone or web. We’re here to help in anyway we can.

Kara Vincent
Kara Vincent

Kara Vincent is the Financial Officer at Lancaster Red Rose Credit Union.