Pension Rollover

Pension Rollover To IRA: Worth It?

The Emerging Option

Opening an individual retirement account (IRA) is an option that has become increasingly favored by employers and employees alike.  Employers get responsibilities similar to those with the 401(k) because employees are the ones who determine the amounts to be contributed.  Employees, on the other side, like IRAs because of the flexibility it offers.  It also makes it easier for employees who transfer from one company to another to collect their benefits from their previous employers into one account, making for significantly easier handling.

A Pension Rollover to IRA:  The Advantages

As mentioned earlier, the biggest advantage of rolling your 401(k) savings over to an IRA is the flexibility and control you’ll have over your money.  With an IRA or even multiple IRAs, it’s fairly easy to invest your money in several markets while you’re still working.  This has the effect of preventing great financial damage to you in the unfortunate event of one of your investments failing.  A diversified portfolio is easier not only to create but also handle with an IRA.

Macabre as it may sound, death is also much easier with an IRA.  Beneficiaries of the 401(k) of the deceased have very few options available to them, while those with an IRA have several alternatives, many of which allow for deferred taxation.

Maximizing Your Rollover

You should be warned as early as now that rolling over your 401(k) could result in 20% of the amount being withheld as taxes.  However, that only happens if you directly withdraw it in your name.  Fortunately, there’s a way around it that would let you enjoy all of the money for which you worked so hard.

The first step is to open a rollover IRA with a financial institution.  The goal of this step is for you to optimize the rules that were laid down by the IRS.  While a direct withdrawal of your 401(k) funds will surely leave you 20% poorer, a transfer of the amount from one IRA trustee to another (i.e. from your employer to your bank or financial institution) will leave the amount intact.  Once you’ve set up your new IRA, ask your previous employer(s) to send a check to the financial institution handling your IRA.  Be prepared for some paperwork, though, as there are some forms that you’ll have to fill up for the transaction to proceed.

If you’re the regular individual who just wants to work and save up for a good retirement, you should seriously consider rolling your 401(k) or other pension plans into an IRA.  It makes for an easier time in terms of managing your money and making it grow.