Do you know these reasons to roll a 401k into an IRA?
There are several reasons to roll over a 401k to an IRA, but the most common is a job change. Generally, 401Ks are not transferable from one company to another. There may be different 401Ks available, but people often just choose to switch to IRAs, especially if they are interested in self-direction.
The disadvantages of switching from a 401K to an IRA include:
Lower Allowable Annual Contributions
No employer contributions
Even small businesses, with just a few employees, have started offering 401Ks, as recent changes in tax laws have made managing the accounts a bit easier. Some self-employed people have also opened 401K plans.
One of the most common reasons to roll over a 401k to an IRA is to have more investment options. 401ks are generally managed by stockbrokers. While retirement investors have some options, they cannot fully diversify. For example, they cannot invest in real estate or the housing market, which can be quite lucrative, if the investor makes the right decisions.
Self-directed custodial companies offer the widest range of investment options. Your clients can invest in anything they are comfortable with, as long as the IRS tax code allows it. There is a short list of investments that are not allowed, including most coins, collectibles, and antiques.
Personal possessions, such as your own home, cannot be held on the account for a number of reasons. One is that holdings within an approved retirement account are protected from your creditors and bankruptcy courts.
You can’t borrow money from the account or lend it money, so with many types of investments, you’ll need to maintain a cash balance to cover costs. All costs related to an investment must be paid by the account and all profits must be returned to it.
If your reasons for transferring a 401k to an IRA include a desire to invest in real estate, you should look carefully for an escrow company. Some of them charge outrageous fees and take a percentage of uninvested cash balances for required “extra” paperwork. Cash balances don’t really require any additional paperwork. Don’t let them fool you.
The best option is an escrow company that charges a reasonable annual fee and a nominal fee to open the account. You should also compare the investment options on offer. The IRS gives custodians free rein when it comes to what they will and will not allow.
Your reasons for transferring a 401k to an IRA could be the desire to have the advantages of a Roth account. Qualified distributions from a Roth account are never taxable. The only downside is that 401K contributions are typically made with pre-tax dollars. Therefore, the entire value of the account will be taxable for the year in which the conversion is made.
You might have other reasons to roll over a 401k to an IRA, but those are the only ones I know of. Remember to think about investing in real estate. It could be a smart decision.
LEARN HOW TO DOUBLE YOUR KING HERE!
We are offering a real estate investment that is guaranteed to earn you at least double the ROI you earned last year on traditional investments like stocks, bonds, and mutual funds, etc. Take a look at this ASAP, your retirement comfort could depend on it. If you have two minutes to spare, visit my website now.