401k Rollover Options – the Pros and Cons

It is much better to look forward to retirement rather than fear it, isn’t it? To make the transition easier and more enjoyable, you should know exactly how and when to execute the rolling over 401k. Because our present economic environment is so volatile, unemployment is rampant, the future of Social Security benefits is highly questionable, and business failures are widespread, it is imperative to take an active role in planning your retirement.

When looking at your 401k rollover options, it’s more prudent to proceed with caution. After all, that money will need to last you for a long time yet. Unfortunately, 401k retirement plans have had major losses in the last few years, and, of course, you wouldn’t want to see your money just vanish. One of your options is to cash out a retirement plan, but this move is not considered the wisest, because of early withdrawal penalties. The tax liabilities here are quite substantial as well. A more wise thing you could be doing is rolling over 401k.

If you find a new job, and a retirement plan is offered (much like the 401k or even 403b), most of the time rollovers will be allowed into your new account. However, many people still wonder whether this is a good idea. Here are the pros and cons of this 401k rollover option:

Pros: One of the benefits of rolling over 401k of your new employer is that there are no investment minimums on fund options, so there is no limit to how much money you can have. If your rollover is not a large amount, you might not have enough money to properly diversify with a mutual fund company. There are cases where you should have at least $3,000 as a minimum investment to put into an index fund at a fund company or a mutual fund. If you have a low 401k balance, then it will be more difficult to diversify this amount than if you simply move it to the new 401k. Here it will be possible to spread the money, and it will not matter how much or how little you have to invest.

Cons: Of course there are also some negatives to this option. The first one is that a lot of flexibility is lost. Since these accounts are sponsored by employers, if you continue to be an active employee, you will have to stick to that plan and its rules. So, whatever investment choices they offer – you’ll be stuck with them. It also means that you will not have access to your funds whenever you want, unless you terminate employment or take out a loan. Also, many of the 401k rollover options have rather high fees, which is especially the case with smaller employers.

For more information on the 401k, go to:
http://www.401k.org/
http://en.wikipedia.org/wiki/401%28k%29

The information supplied in this article is not to be considered as medical advice and is for educational purposes only.