401K Rollover: The Basics
Getting a 401K through your employer is a great way to save for retirement. However, these accounts aren’t always the best savings options, and people frequently benefit from doing a 401K rollover after leaving a company. The average worker usually needs a little guidance when it comes to how and where retirement money should be moved, so here’s some basic information to help you understand the process.
The first step is deciding where your money should go. If you’re moving from one company to another with a similar 401K program, you can just have the money moved into whatever provider your new business uses. Loads of companies offer these investment accounts, so it’s likely that your new job will offer its 401K through a different broker. The big question when doing this type of 401K rollover is what type of fees you might have to deal with when moving the money. Ideally, your new employer will make sure you don’t take a financial hit.
Most commonly, people transition from a 401K to an IRA, which is not associated with an employer. You can choose between a traditional or a Roth IRA, the only difference being whether you want to pay taxes up front (Roth) or have those payments deferred. If you roll into an IRA, you’ll have a lot more freedom to choose which company you go with and how your retirement funds are distributed. For some people, this is ideal; for those who have no interest in making these types of decisions, account managers will still be there to offer guidance.
When you leave a job with a 401K program, you aren’t required to do a 401K rollover. However, there are some notable benefits for those who choose to make the switch. In many cases, standard 401K plans have a lot of hidden fees and services charges the average employee doesn’t see. Accounts also get overleveraged and people end up holding too many positions and not seeing solid returns. When you choose where you roll your money, you get to pick what type of account you want and who you want advising. If you aren’t receiving an employee match on your retirement contributions, you’re probably best served by doing a rollover and taking a little more personal interest in your investing.
Investing in money markets isn’t easy for a lot of people, and that leads many to leave money in subpar accounts. If you think your capital could be growing more quickly, look into a 401K rollover and learn more about the different firms that can help you succeed.