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Why You Should Rollover Your Old 401(k) When You Retire or Change Jobs Thumbnail

Why You Should Rollover Your Old 401(k) When You Retire or Change Jobs

Investing

Deciding what to do with your old 401(k) when you retire or change jobs can feel overwhelming, but it’s a crucial decision that can significantly impact your financial future. Rolling over your 401(k) into an IRA offers numerous benefits that can enhance your investment experience and help you achieve your retirement goals. Here’s why you should consider rolling over your old 401(k): 

Better Investment Experience

One of the primary reasons to rollover your old 401(k) is to gain a better investment experience. With an IRA, you can access a wider array of investment options, including Exchange-Traded Funds (ETFs). ETFs typically have lower costs and can provide more targeted and specific investments to help you build a robust and well-diversified portfolio.


Enhanced Rebalancing

Rebalancing your portfolio is crucial for managing risk and improving investment outcomes. In an IRA, you can rebalance more efficiently compared to a traditional 401(k) plan. This flexibility helps you maintain your desired asset allocation, manage risk, and potentially improve your portfolio’s performance over time.

More Customization

An IRA allows for greater customization of your investments. Unlike the often-limited choices within a 401(k), an IRA provides the freedom to tailor your portfolio to better align with your retirement goals and personal risk tolerance. This customization can lead to a more effective and personalized investment strategy.

Access to a Broader Range of Asset Classes

401(k) plans typically offer a limited selection of investment options. By rolling over to an IRA, you can access a broader range of asset classes that many 401(k) plans don’t include. This can help diversify your portfolio and enhance potential returns. For example, you can invest in emerging markets, Real Estate Investment Trusts (REITs), U.S. small-cap companies, and international small-cap companies, which may not be available in your 401(k).

Concentration Risk and Excess Fees

Having multiple old 401(k)s and retirement accounts can lead to concentration risk and an excess of fees. Concentration risk occurs when your investments are not sufficiently diversified, which can happen if you have similar types of investments spread across various accounts. This lack of diversification can expose your portfolio to higher volatility and risk. Additionally, maintaining multiple accounts often results in higher administrative fees and management costs, which can erode your investment returns over time. Consolidating your retirement accounts into a single IRA can help mitigate these risks by streamlining your investments, reducing fees, and providing a more cohesive strategy for managing your retirement savings.

Improved Portfolio Outcomes

Ultimately, the goal of any retirement plan is to ensure you have enough wealth to support your desired lifestyle in retirement. Rolling over your 401(k) into an IRA can help you build a better portfolio to achieve this goal. With access to a wider range of investment options, lower costs, and the ability to customize your portfolio, you can create a more effective strategy for growing your wealth and securing your financial future. 

Pre-Tax 401(k) to Traditional IRA

If your 401(k) contributions were made on a pre-tax basis, rolling over these funds into a Traditional IRA is a seamless process. This move allows you to continue deferring taxes until you take distributions in retirement. Here are some benefits of rolling your pre-tax 401(k) into a Traditional IRA:

  • Tax Deferral: Just like your 401(k), a Traditional IRA allows your investments to grow tax-deferred until you withdraw the funds in retirement.
  • Potential for Tax Deductions: Contributions to a Traditional IRA might be tax-deductible, depending on your income and participation in other retirement plans.
  • Continued Growth: Your money continues to grow without being taxed, allowing you to potentially accumulate more for your retirement.

Roth 401(k) to Roth IRA

If your 401(k) contributions were made to a Roth 401(k), rolling these funds into a Roth IRA is the best option. A Roth IRA offers unique advantages that can benefit your retirement strategy:

  • Tax-Free Growth: Investments in a Roth IRA grow tax-free, and qualified withdrawals in retirement are also tax-free.
  • No Required Minimum Distributions (RMDs): Unlike Roth 401(k)s, Roth IRAs do not require you to take minimum distributions (at age 73 or 75 depending on your birthday), allowing your money to grow even longer.
  • Flexibility: Contributions to a Roth IRA can be withdrawn at any time without penalties or taxes, providing flexibility if you need access to funds.


How to Roll Over Your 401(k)

Rolling over your 401(k) can seem daunting, but at Seaside Wealth Management, we make it simple and stress-free. Here’s how we can assist you every step of the way:

Open an IRA Account

We will help you open a new IRA account at Charles Schwab and ensure that your portfolio aligns with your long term goals and your financial plan. Our team will manage and monitor your IRA to ensure you and your loved ones are set you up for success.

Initiate the Rollover

We'll coordinate with your 401(k) plan administrator to initiate the rollover process. Our team will handle the necessary paperwork and guide you through each step to ensure a smooth transition.

Transfer the Funds

We recommend opting for a direct rollover, where your funds are transferred directly from your 401(k) to your new IRA. This method avoids any tax withholding and potential penalties, ensuring your retirement savings remain intact. 

Invest the Funds

Once the funds are in your IRA, our team will work with you to invest them according to your retirement goals and risk tolerance. We tailor your investment strategy to help you build a robust portfolio designed to meet your long-term objectives.

Conclusion

Rolling over your old 401(k) when you retire or change jobs can provide you with a better investment experience, more customization, and access to a broader range of asset classes. This flexibility can help you build a robust portfolio, manage risk more effectively, and ultimately achieve your retirement goals. Whether you’re rolling over a pre-tax 401(k) to a Traditional IRA or a Roth 401(k) to a Roth IRA, the benefits are significant. If you’re considering what to do with your old 401(k), give us a call at 760-730-8120 or email us at [email protected] to explore the benefits of rolling over your account into an IRA and ensure a smooth transition to retirement.

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 This commentary reflects the personal opinions, viewpoints and analyses of the Seaside Wealth Management, Inc. employees providing such comments, and should not be regarded as a description of advisory services provided by Seaside Wealth Management, Inc. or performance returns of any Seaside Wealth Management, Inc. client. The views reflected in the commentary are subject to change at any time without notice. Nothing in this commentary constitutes investment advice, performance data or any recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. Seaside Wealth Management, Inc. manages its clients’ accounts using a variety of investment techniques and strategies, which are not necessarily discussed in the commentary. Investments in securities involve the risk of loss. Past performance is no guarantee of future results.