A 401k rollover to an IRA account typically happens when you leave a job, become disabled or reach age 59 ½. Although you can rollover your 401k to a 401k at your new employer, many people choose to put their money into an individual 401k account.
If you have had several jobs that each had their own 401k, moving your accounts to and individual IRA can make management of your funds easier and more convenient. Instead of having multiple accounts and investment options to track you can manage all of your money in one account. Having all of your retirement funds in a single place can also help you balance your portfolio for your individual needs. What you need from your retirement funds varies according to you age. If you are younger, you may wish to take more risk to try and grow your money more quickly. If you are close to retirement age, less risky investment may be your preferred option. When you have all of your money in one place it is easier to allocate your assets according to individual requirements.
A 401k rollover into an individual account may also reduce your expenses. While not all 401k accounts have high expenses, may do. Rolling over your 401k may also give you the option of investing in a self-directed brokerage account. This gives you maximum control of your investments since you are not limited to the investment options provided by your employer. By choosing how you invest your funds you can direct reduce your expenses and invest according to your personal risk tolerance.
Rolling your funds over into an individual IRA can also protect you if your former employer faces financial issues, merges with another company or changes the parameters of their 401k account in ways you did not anticipate.
To rollover the funds in your 401k to an IRA account you need to perform three easy steps. First you need to set up an IRA account at your bank, credit union, brokerage firm or other financial institution. Most financial institutions are happy to help you fill out the required paperwork. Next you need to inform your employer, or former employer about the details of the transfer. Be sure that the employer makes out the check to the financial institution where you have set up your IRA. This is known as a trustee-to-trustee transfer and will ensure the avoidance of the 20% automatic withholding. After the transfer is complete you will need to begin investing your money.
A 401k rollover to an IRA account is very often your best option. You will enjoy greater convenience in managing your account as well as an increase in investment options.