03 Jul I’m retiring. Should I move my 401(k) to an IRA?

Q. I left my retirement funds in the 401(k) of my previous employer. It’s invested very conservatively, so I haven’t lost much since 2008 but I haven’t gained much either. Is there any advantage – or any reason – to move the money to an IRA? For all intents and purposes, I’m now retired?
— Looking ahead

A. We’re sorry if you lost your job during this pandemic and rather than going back to work, you’re trying retirement on for size.

There are many reasons you might want to transfer 401(k) accounts into an IRA.

In many cases the investment offering is broader, funds have lower expenses and savings can be realized with the elimination of administrative fees, said Claudia Mott, a certified financial planner with Epona Financial Solutions in Basking Ridge.

She said the process of managing and tracking your asset allocation can also be simplified by having all accounts at one custodian.

You can probably transfer your 401(k) with a direct rollover to the custodian of your choice.

“If the rollover does not take place directly, it is essential that the money be invested in the IRA within 60 days to avoid it being classified as a distribution and considered taxable income,” Mott said.

If you have an existing IRA or are merging multiple 401(k) accounts, it is important to be sure that all contributions were made on a similar basis.

“Generally, 401(k) contributions are made pre-tax and these should not be combined in an account where dollars were put in that were not tax deductible,” Mott said. “When it comes time to make distributions, it’s a much cleaner process to know that the tax status of the money coming out is all the same.”

Mott said firms such as Fidelity and Schwab offer platforms for retail customers and provide a wide range of investment options including mutual funds and exchange traded funds (ETFs).

“For those who prefer a firm with a physical office and an advisor who they may meet or speak with regularly, these firms are often a good fit,” she said. “Vanguard also provides a wide variety of low-cost investment products. Based in Pennsylvania, they do not have offices in which to meet with clients, but do assign a primary representative for clients of certain account sizes.”

In some cases, the funds you own in the 401(k) can be moved to the IRA, but there are other instances where the assets will be put into cash before they are transferred, she said.

Regardless, this transition creates the perfect opportunity to meet with an investment professional to review your goals and risk preferences so that the new IRA can be set up to reflect them, Mott said.

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This story was originally published on July 3, 2020.

NJMoneyHelp.com presents certain general financial planning principles and advice, but should never be viewed as a substitute for obtaining advice from a personal professional advisor who understands your unique individual circumstances.