Your 401(k) may seem like your ticket to a happy retirement, but you might not feel as cozy knowing how tied it is to the stock market?
Without diversity or a means to invest in assets like real estate, your 401(k) could be in jeopardy if the market faces troubles too. It could be in your best interest to get an individual retirement account (IRA) instead. This article will explain how you can turn your 401k into an IRA.
- Preview: Top Rated IRA Rollover Custodians (Precious Metals)
- What Are The Options For Your Current Plan?
- Advantages of Moving 401k To Gold IRA
- Disadvantages of Rollover 401k to Gold IRA
- All About Fees
- Who Are The Best Gold IRA Rollover Custodians?
- How To Start The Process?
- Is It Worth It?
Preview: Top Rated IRA Rollover Custodians (Precious Metals)
Since a 401(k) is employment-based, figuring out what to do with it when you start a new job can be a little frustrating.
You could cash it out or have it merged with your next employer’s 401(k).
It’s a big decision to make. Your income tax has to be considered, as do your retirement plans. A comfortable retirement could hinge on this decision.
The amount of money in the account is also significant to consider.
With a smaller amount, like $3,000, cashing out isn’t the worst decision. You can take care of some essential expenses that you’ve needed some extra scratch for, such as getting a new dishwasher.
However, if your 401(k) has a large balance, leave your money alone as best as you can. Cashing it out means you’re liable for some severe tax penalties.
You may also find that your new job doesn’t let you merge your old 401(k) into your new one.
That being said, they don’t get to decide whether or not you roll it into an IRA.
You don’t have to decide to go for this right away. It’s just good to know you have the option.
Still, let’s talk about how you can get an IRA out of a 401(k).
What Are The Options For Your Current Plan?
With a 401(k) and a job ending, there are four things you can do:
Cashing out a 401(k) is quite simple. You tell your trustee to turn your account into liquid and get a check sent to you.
From there, your account is closed, and there’s nothing else you need to do.
Pros: Assuming you don’t have much in the account, liquidating your 401(k) is logical. You can use the money for debt or other important expenses.
Additionally, a low tax liability can mean you won’t be penalized much. You can squash credit card debt interest as well.
Cons: Your withdrawal will be taxed, and this can be difficult if you’re in any tax bracket higher than 12 percent.
Also, the IRS taxes anyone younger than 59-and-half 10 percent for early withdrawals.
KEEP IT WHERE IT IS
You don’t have to take any action with your old plan. It can just stay where it was before.
The only exception would be if your employer had a rule requiring account funds to be transferred when employment ends. Otherwise, your money can stay right there.
Pros: This doesn’t necessitate any efforts from you. Your 401(k) might have had some excellent choices for investment and plan performance, and you decide it’s best just to leave it be.
Cons: If you don’t like the 401(k) design, it doesn’t make much sense to choose this option.
It could also accumulate yearly maintenance costs, among other expenses, which could be more of a pain than it’s worth.
Letting multiple 401(k)s from different jobs sit could mean you have a fee to pay on numerous accounts.
ROLL IT OVER TO YOUR NEW EMPLOYER
In this plan, you merge your old plan into your current one.
After this is done, you can enjoy all of the fruits of your new 401(k).
Pros: This is an excellent option if your new job comes with better investment strategies and/or reduced fees.
Cons: Your new company may be prevented from doing this.
It may also turn out that the new plan doesn’t let you do nearly as much, investment-wise, and comes with higher costs.
401K TO GOLD IRA ROLLOVER
You don’t have to roll your 401(k) into another one. A great alternative is to put it in an IRA instead.
Pros: This lets you put your 401(k) finances into an IRA. You can have a lot more choices for investments, as well as smaller costs.
Having a good trustee on your side is also crucial. It should be someone with lots of investment experience who can advise you and explain some of the more complex aspects of investing.
Cons: This isn’t the best decision if you don’t feel at least somewhat confident with investing.
If you want to entrust the decision-making to another party, you can get a robo-advisor to handle your account.
There can also be some legal benefits lost when you take money from a 401(k) and put it into an IRA. We talk about that more in an upcoming section.
Advantages of Moving 401k To Gold IRA
The best reason to get a 401(k) turned into an IRA is that you have so much more control.
These are some of the things you can control when you have an IRA.
- Ability to pick trustee - With an IRA, you can pick the investment platform you use. It has customer care available 24 hours a day, seven days. It also has lots of great aids for helping you learn more about investing. You can even find a company with offices in your area.
- Make your own investment decisions - With 401(k)s, your investment options may be pretty limited. IRAs have so many more choices for investing. Besides money, you can also invest in bonds, real estate, stocks, options, and precious metals. They also can include a robo-advisor in your plan.
- Fees Control - A fear of fees might turn you off from investing, but they’re actually a lot less egregious than you might think. The majority of brokers don’t charge any fees, and a robo-adviser can handle your portfolio at a totally reasonable rate. Your investments can more than withstand these fees.
- Funds access - Generally speaking, you shouldn’t withdraw funds from your retirement account before you’re supposed to. However, IRAs are a lot better for this than 401(k)s or any other work-based plans.
- Roth IRA option - You may want to convert 401k into physical gold in the form of a Roth IRA, either partially or completely. These IRAs let you take tax-free distributions during retirement. They also don’t have required minimum distributions once you turn 70-and-a-half. There are some jobs that have Roth 401(k)s, but it’s not the norm.
Disadvantages of Rollover 401k to Gold IRA
There are some disadvantages to rolling your 401(k) into an IRA. Both these and the advantages merit joint consideration.
- No separation from service exemption - While it’s typically discouraged to withdraw from your retirement account before you turn 59-and-half, it’s easier when you have a 401(k). That’s because they waive the 10 percent tax penalty for early withdrawals at certain ages, like 55, due to the separation from service exemption. However, IRAs don’t have such an exemption.
- More law protections with 401(k)s - Since 401(k)s are ERISA plans, they have a lot more legal protections. This means your funds in these accounts won’t be under threat in civil cases, bankruptcy, or creditor demands. IRAs still have some protections, however. Both standard and Roth IRAs allow as much as $1,362,800 to be untouchable during bankruptcy cases. Many states also have laws stating creditors can’t go after IRAs.
- Ease of merging with a new job plan - It’s pretty easy and common to merge an old plan with a new one, but the same doesn’t necessarily apply to an IRA.
Roth IRA vs Traditional
This part of the guide assumes you’ve firmly decided to roll your 401(k) into an IRA.
Here comes the next big decision: a traditional or Roth IRA? We’re going to delve into each type.
How Does A Roth Work?
How Does Traditional Work?
All About Fees
Should you go for an IRA, you need to know about the various fees.
A good thing to know is that the fees with self-directed IRAs are pretty much always less than ones for 401(k)s.
These are some examples:
Annual fees - IRAs usually don’t have annual fees. They can have various names, and they’re often not too much, but it’s still good to know you can save your money even further with an IRA.
Trading commissions - Brokerages typically waive trading commissions, which are fees for trades with stocks, options, and exchange-traded funds (ETFs). However, you may be charged fees for different kinds of investments, such as mutual funds.
Load fees - Mutual funds have sales charges known as “load fees.” They can be up to three percent. Nonetheless, you can find that lots of mutual funds operate as “no-load.” These fees can be circumvented by keeping the funds.
Management fees - Management fees are for managed funds. Accounts with robo-advisers would be an example of this. These accounts usually have yearly costs, between 0.25 and .50 percent. If your IRA has $100,000 in it, with a 0.25 percent robo-advisor management fee, you’d be charged $250 each year. Typically, this is taken out as a pro-rated amount each month.
Expense ratios - Expense ratios are for marketing and administrative costs. They’re known as 12b-1 fees and cost up to one percent per year. However, there are funds with fees lower than 0.20 percent. These fees aren’t stacked on top of your fund. They’re integrated into it, which means the net return is lessened.
Who Are The Best Gold IRA Rollover Custodians?
After you’ve chosen to turn your 401k into a gold IRA, you need to decide how you’re going to invest it.
For self-directed investing, such as dealing with stocks, bonds, funds, and real estate investment trusts (REITs), you need to choose a trustworthy broker to handle your IRA.
There are lots of brokers with no-limit investment opportunities who don’t charge anything for trading fees, such as:
Should you want to stick with ETFs or mutual funds, your best bet for a broker may be Vanguard.
Vanguard lets you trade with stocks as well as different kinds of securities. However, they also have trading fees to deal with.
The good news is that they have ETFs and mutual funds with no fees.
Since many professional portfolios include Vanguard funds, you can feel a lot of security when you’re using their services.
How To Start The Process?
401k to IRA rollovers have two options.
First, you can do a direct rollover.
With this, you directly transfer 401(k) funds into an IRA account with a trustee for help.
The other way is to do an indirect rollover.
With an indirect rollover, you have the funds sent to you. Then, you put them into your IRA.
The IRS requires you to transfer these funds in no more than 60 days. Failing to do this could make your transfer deemed to be a 401k distribution.
A direct rollover is the better option.
You won’t have to worry about the 60-day deadline with a direct rollover or any of the financial penalties that would come with that.
Talk to your IRA custodian, and tell them how you want your rollover IRA to gold accomplished.
Since this is what they do for a living, they’ll know exactly what needs to be done.
They’ll talk with who’s handling your 401(k) and work to guarantee your funds are properly deposited.
Is It Worth It?
Lots of people are rolling over their 401(k)s to IRAs.
It makes a lot of sense when you see the advantages of an IRA.
When the rollover is finished, you’ll have a lot more choices with an IRA compared to a 401(k).
You can choose your trustee, investment opportunities, and fees.
It lets you feel like you’re in a lot more control and that you have more say in your retirement.
You can also get a new 401(k) going with your new job. Imagine how good it’s going to feel come retirement time when you have two bountiful accounts to withdraw from?