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6 reasons an IRA rollover makes sense

It can be tempting when you change jobs to cash out your 401(k). The temptation rises when the money doesn’t seem life-changing – say less than $5,000. That’s not enough to retire on, you think, so why not pay the taxes and the 10 percent penalty (if you’re under age 59-1/2) and use the money for something else?

If you do that after every job hop – and if you’re like the average person you’ll have 12 to 15 jobs in your lifetime – you could be scrambling near retirement to adequately fund your golden years. Choosing to roll these funds into an Individual Retirement Account (IRA) is a simple way to preserve your nest egg. There are benefits to doing so you might not have considered, so here are six reasons an IRA rollover makes a great choice:

Move your money tax-free. When you transfer money out of a 401(k) or other type of retirement plan – or from one IRA to another – you can do so without paying taxes by rolling the funds into an allowable account. Our retirement advisors can help you decide what type of account might be right for you.

One potential advantage is the tax bracket you’re in when you retire might be lower than the one you’re in now, so delaying distribution can potentially save you a lot of money, and it gives your money more time to grow.

Let’s say you pulled $1,000 out of a taxable retirement plan just before the market crashed in 2008. Minus the 10 percent penalty and assuming you’re an average earner with a 25 percent tax rate, you’re left with $750. Had you kept the money invested in the S&P 500 Index and reinvested your dividends, your money would have grown to $1,850 at the end of 2016. If you’re not making money in retirement and simply living off your investments, and your retirement tax rate is 15 percent, that leaves you with $1,572 – more than double what you pulled out early.

Preserve your current tax bracket. If you take a retirement plan distribution instead of rolling it over, the extra money might push you into a higher bracket, which could bring with it a higher tax bill. You should consult a tax attorney or accountant to see how withdrawing funds might affect your tax status, but rolling them over will avoid the possibility of the funds extending your income to a higher tax bracket.

Manage your money in one place. If you have retirement accounts in multiple locations, rollovers give you the option to move them into fewer accounts or a single one. That can make managing and tracking your investments easier.

As long as you have $5,000 in an account, employers are required to keep your money in their retirement plan even if you leave the company. If you elect to leave it there, it’s up to you to ensure they have your updated contact information. Rolling your accounts over reduces your paper trail and the need to follow up with your previous employer.

One option if you have a small balance (less than $5,000) is to ask your new employer if they will accept a rollover from your previous employer into their retirement plan. Not all will agree, but it doesn’t hurt to ask and would solve the need to start a side account. If you have more than that, it makes sense to roll it over into a new account.

Find more investment options. In a 401(k), you generally don’t have a choice about which investments are available. Your company sets up the plan and makes the decisions, which could lead to a limited menu of choices. With an IRA rollover, your choices greatly expand, and that includes investing in individual stocks – an option not usually available in a 401(k).

Lower fees. Depending on the investment options available in your qualified plan, you might be responsible for the plan fees through the mutual funds offered in the plan. But once you leave, you can roll over into an IRA and may find investments with similar or better performance and the potential for lower fees.

More investment guidance. Your company’s plan manager might not be giving you the level of service you need to make informed decisions. When you do an IRA rollover with us, you get the same expert advice no matter how much money you move. We believe in helping you build your future, you can count on us to offer reliable and trustworthy service during your entire journey.

Call us at 740.349.3900 and let us know how we can help you, whether you want to know more about an IRA rollover or another investment service.

Investments are not FDIC insured, not bank guaranteed and may lose value.


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