How to Roll Over Your 401(k)

When you leave a job with a 401(k), you have a few options on how to keep the money. Some people cash out their account, but this results in a large chunk of it being paid in taxes. To keep your retirement funds, consider a 401(k) rollover into an IRA. Once you have opened an account, rolling over what you have invested thus far should be pretty easy.


First, you need to choose a provider. The main factor in this decision is how much of a hand you want to have in directing your investments. Some providers use their expertise to find the best investments that fit your needs, while others offer advice but mostly hand the reigns to you. An investment manager can help you create a diversified portfolio after your 401(k) rollover and manage it for you for a fee. A robo-advisor is a great option for a hands-off approach for a smaller fee. If, however, you would like to manage your portfolio yourself, you can choose your own investments. These providers facilitate trades based on your direction.


No matter what approach you choose, you also need to decide how much risk you want to take. Any investment comes with a certain amount of risk, but some are more stable than others. The greater the risk, the faster your money is likely to grow. Your provider can help you assess the level of chance you are willing to take and select options that fit your preferences.


Other factors to consider with a 401(k) rollover are the fees associated with each particular account. A Roth IRA inherently costs more upfront because you must pay taxes on the amount that you roll over. If you don’t want to do that, it’s best to choose a traditional IRA. When you are shopping around, keep a lookout for other fees that different providers may charge, such as:


  • Administrative fees
  • Management fees
  • Trading commissions
  • Expense ratios
  • Transaction fees


It’s important to know the services each of these fees represent with the particular provider you are considering. If you want the service attached to a fee, it may be worth it to you to pay it. If, however, the service is unnecessary or you find the percentage excessive, you may want to look elsewhere. For example, if the expense ratio exceeds 0.5%, you can probably find a better deal somewhere else.


Once you have chosen an IRA for your 401(k) rollover, you just need to fill out the paperwork to roll it directly into your new account. A rollover is a great way to keep the retirement funds you have earned.


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