Q. I left my previous employer and now want to roll over my 401(k) into an IRA. What are the pros and cons to do so?
A. There are a few pros and cons of rolling over 401k to an IRA.
Pro 1. Flexibility
When you roll into an IRA, you are no longer limited to the choices the 401(k) plan offers, you can even invest in stocks.
Pro 2. You Are In Control
You may cut costs if the investment options in the previous employer's 401(k) are expensive.
You can also have a customized beneficiary designation if needed, which is not possible in many 401(k) plans.
Con 1. You May Lose Big
As you are in control and have the flexibility to invest, you might be tempted to invest in stocks and your chance of losing big will be significantly higher than investing in mutual funds.
Con 2. Difficult to Tap the Money
If you are 55 or older at the end of the calendar year in which you separate from service, you may tap that particular 401(k) without the customary 10% penalty that applies to withdrawals prior to age 59 1/2. For those that qualify, this exception makes it simpler to get cash than taking it from an IRA, because you cannot borrow from an IRA. You can get to IRA money penalty free but that will be a lot hard to do so.
Con 3. Lose Stronger Creditor Protection
Some states offer stronger creditor protection to 401(k)'s than IRA's so you might not want to complete a rollover If that is a concern.
A. There are a few pros and cons of rolling over 401k to an IRA.
Pro 1. Flexibility
When you roll into an IRA, you are no longer limited to the choices the 401(k) plan offers, you can even invest in stocks.
Pro 2. You Are In Control
You may cut costs if the investment options in the previous employer's 401(k) are expensive.
You can also have a customized beneficiary designation if needed, which is not possible in many 401(k) plans.
Con 1. You May Lose Big
As you are in control and have the flexibility to invest, you might be tempted to invest in stocks and your chance of losing big will be significantly higher than investing in mutual funds.
Con 2. Difficult to Tap the Money
If you are 55 or older at the end of the calendar year in which you separate from service, you may tap that particular 401(k) without the customary 10% penalty that applies to withdrawals prior to age 59 1/2. For those that qualify, this exception makes it simpler to get cash than taking it from an IRA, because you cannot borrow from an IRA. You can get to IRA money penalty free but that will be a lot hard to do so.
Con 3. Lose Stronger Creditor Protection
Some states offer stronger creditor protection to 401(k)'s than IRA's so you might not want to complete a rollover If that is a concern.
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