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When should you roll your 401k into an IRA?

SALT LAKE CITY, Utah (ABC 4 Utah) - Travis McGhee with FuturesAnimal talks about the benefits of rolling your 401k into an IRA.
SALT LAKE CITY, Utah (ABC 4 Utah) - Travis McGhee with FuturesAnimal talks about the benefits of rolling your 401k into an IRA.

Question: "I'm 61 years old, should I roll a 401k into an existing IRA?"

This is a question at the top of a large number of individual investors minds, especially those between 30 and 50. The reason being, more and more folks change jobs at a far more frequent pace than the previous generation did. It is not uncommon for someone in today's market to have 2-3 jobs before they hit 30. And with each of those jobs is likely a separate 401k plan.

So the question is, "what do you do with those 401k's when you leave the company?"

Well, for one you don't have to do anything. You can leave the 401k where it is at as long as the company has not separated from the provider, in which case you will receive a notice asking you If you want to take a distribution, roll over to a 401k or roll over to an IRA.

However, this could present a problem for the proactive investor as multiple 401k's in different places can become extremely difficult to manage. It is much easier to control your investments when you have them all in one place (not one investment but one brokerage account, IRA, etc).

Another option is to open an IRA account or rollover in an existing IRA account. This will enable you to take all of your old 401k plans and consolidate them into one location. Making it easier on you to proactively manage the account. Not to mention, for those of you who are taking the next step and actively investing in the market, IRA's will typically provide you with more investing vehicles than simply mutual funds which is all that many 401k's offer.

The one item that I want all to take away from this is that you do not have to cash out a 401k when you leave a company, and I highly recommend that you do not unless the circumstances are dire and require you to access the money. Increasingly we are hearing more and more cases, especially during the recent recession, of folks simply cashing out a 401k because "there wasn't much money in it". Well folks, that money adds up, and when you cash out a 401k you get hit with both a penalty and are taxed on the money you are taking out. A double whammy! Not to mention that money stops working for you and begins working against you. So when you leave a company and are tempted by the letter asking you if you want to take a distribution, think long and hard about the decision, and roll over to another account with no tax consequences if possible.


Every Tuesday on ABC 4 Utah News at 4 p.m., either Greg Jensen, CEO and Founder of OptionsANIMAL, an investor education firm or Travis McGhee, CEO of FuturesANIMAL, a registered brokerage firm will be available to offer financial planning and investing advice.

Submit your investment questions to Greg or Travis at the Ask the Expert page on our website.
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