In many 401ks and other forms or retirement accounts, there is a little known provision that will allow you to roll money out of your 401k into your own IRA while you are still working. You do have to be 59 1/2 years old to do so though. Some of the reasons you may want to do this are:
- Control - More people today want control there way.
- Diversification - Many employer-sponsored plans offer limited investment options or options that are prepackaged like target date funds or index funds. In contrast, most IRAs typically provide a wider range of investment choices across virtually every asset class. This flexibility can help you better diversify your retirement assets to meet your individual investment goals.
- Beneficiary options — Typically, IRAs allow non-spouse beneficiaries to stretch their inherited IRAs over their lifetimes. This type of beneficiary distribution option is not available in most employer-sponsored plans and may limit distribution choices for your beneficiaries.
- Advisory - many retirement plan participants want help with their investing and other financial planning. Tapping into a source of advice could be a service worth exploring.
- These are just a few of the advantages.
- Age limitations - In qualified plans, the age 55 rule allows participants who stop working at age 55 or older to take distributions without the 10% IRS premature distribution penalty. In an IRA, you may not take distributions until age 59½. For this reason, if you plan to retire early, you may want to preserve penalty-free access to your retirement funds by not moving all of your 401(k) assets to an IRA before retirement.
- Creditor protection - While IRAs now have federal bankruptcy protection, other IRA creditor protection is still determined by state laws. Qualified plan assets continue to have broad federal creditor protection.
- Cost - Fees related to having your own IRA may be more costly than the investment options inside the retirement plan; however, having access to asset classes not offered in your retirement plan may more than make up for the cost difference.
- There are other disadvantages what we would need to talk about before employing this strategy.
As you come closer to your retirement age, this is just one of many strategies we can discuss to help you make great decisions leading up to your retirement. We encourage your questions so please use us as a resource. Feel free to pass this idea along to your friends and thank you for your time to read this latest blog post entry.