Do you want to gain investment flexibility without compromising your wealth? If so, consider a rollover 401(k), an option that many people are in favor of to gain tax benefits. Consumers can gain a greater level of control when they roll over 401(k) to IRA, because unlike a company-sponsored plan, an individual retirement account (IRA) allows for a wider field of investments including stocks, bonds, precious metals, ETFs, etc.
While some might be fortunate to work for companies that over dozens of investment choices om 401 (k) , many are not. They are tied to investment options that minimize cost to their employees, or that are easy to manage, but not those that necessarily offer the best return to investors. And most 401(k) are completely dependent on on the well-being of Wall Street for their performance, meaning that investors that are looking to protect their retirement savings from a market crash have no place to turn.
One of the main reasons why soon-to-retire individuals go down this route is because it keeps their retirement savings tax-advantaged. What’s more, monitoring savings progress and managing accounts is made easy with a rollover 401(k). Before you actually make the decision to roll over 401k you should first understand the differences between a Traditional and Roth IRA.
Rollover 401(k) to Traditional IRA
If you go down this route, you must understand that your contributions will be taxed at the current rate. This isn’t such a bad thing, because when the money and/or assets are left to grow interest over time, your wealth will build tax-free. Considering the fact that the tax bracket tends to change quite a lot, this could really shield your savings from harsh tax fees. When you roll over 401(k) to a traditional IRA, early withdrawals will cost you a 10 percent penalty fee. Taxes apply, but no penalties apply if you withdraw between the age of 59.5 and 70. Any withdrawals made after the age of 70 are required by law, so don’t forget to make a distribution!
Rollover 401(k) to Roth IRA
A rollover 401(k) to IRA Roth might be right for you if you are interested in making non tax-deductible contributions. Earnings can grow tax-free with this retirement savings method and your account can be funded with the money you earn. Money market funds, CDs, ETFs, mutual funds, stocks, and bonds are some investment options making the investment pool similar to a traditional IRA. If your income is above a certain level, you might not be eligible.
Should you be on the verge of initiating a rollover 401(k), but require investment advice from an expert, get in touch with the team at Goldco.