As you undergo the process of switching to a job at a new organization, one decision you face is whether to transfer your current 401(k) savings into the 401(k) retirement plan offered by your new employer or opening an individual retirement account (IRA).
Whether you are early in your career or nearing the end, it is important to strategize ways to fortify your retirement. One way of doing so is maintaining an IRA, which offers a number of financial benefits that serve you in the long-run.
Keep your money untouched
While doing financial planning, you should consider retirement tax strategies. One primary advantage of rolling over your 401(k) into an IRA is your tax deferral will continue. If properly executed, you also will not owe taxes on the money you transferred, though you should report the action to the IRS. Additionally, there are no fees associated with starting an IRA account or rolling over funds from orphan 401(k) accounts into the IRA.
Broadening your horizons
IRAs often provide you with numerous investment options, unlike 401(k) accounts that generally restrict your choice between a couple of mutual funds or options selected by the plan custodian. With an IRA, you have access not only to mutual funds, but also individuals stocks, exchange-traded funds (ETFs), and other types of investments to help you develop a more robust savings strategy and have more control over risk management.
Additionally, having an IRA does not limit your from contributing to both accounts at the same time, as long as you stay within the annual contribution limit.
Better access to money
In general, the rules governing IRAs, generated by the IRS, are simpler and more standardized. While companies have the freedom to set up their individual plans in various ways, making it more confusing for you as a participant, the rules regarding IRAs stay generally the same from broker to broker.
Depending on the type of IRA, you may still have options for borrowing funds if an emergency arises. IRAs also tend to provide more payout options for beneficiaries in the case of your death.
Finally, your IRA savings are not at all dependent on the financial health or stability of the company you work for. Meaning, if your current or former employer—whichever controls your 401(k) account—goes bankrupt, your money is not frozen or held in limbo during months or even years of court proceedings.
Improving financial literacy
Whether you are interested in starting an IRA or simply want to better secure your future, there is no time like the present to further your education on financial planning and retirement strategies. Fortified Retirement offers a number of free retirement seminars and workshops for those still working as well as those are already in their retirement. These public events, led by industry leaders, will improve your knowledge of the important information, tools, and resources that can help you have more control of your retirement strategy.
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