Rolling over to an IRA vs. retaining an employer retirement plan

Joseph B. Hash

What’s your motivation?

For many people, gaining clarity is the overriding factor in choosing a rollover IRA. Keeping track of multiple employer accounts and making sure they’re rebalanced appropriately can get complicated. Putting all your retirement savings in one place makes it easier to manage your accounts and monitor your progress.

This can be especially true as you near retirement and the onset of required minimum distributions (RMDs), which kick in at age 72. For each 401(k) account you hold, you’ll need to calculate and withdraw the RMD separately. However, if you’re still working, you won’t need to take RMDs from your employer’s plan.

Pro tip: If you’re planning to work past age 72 (and you don’t own 5% or more of your company), you may want to consolidate accounts into your current employer retirement plan and avoid RMDs until you officially retire.

With an IRA, you’ll need to take RMDs at 72, even if you’re still working, but you can choose to take them from any or all your traditional IRAs.

If you have a Roth in your 401(k), keep in mind those accounts are subject to RMDs, whereas Roth IRAs are not. You may want to move any Roth account out of your 401(k) and into a Roth IRA. 

Lobel’s overall advice is to ask yourself, what’s the driving motivation for you? “Are you trying to clear up your financial life—consolidate 5 plans into 1—to make things more manageable? Or are you OK having more than one plan?”

If you still have questions, talking with a qualified financial advisor can help you understand your options and make the best choice. Whatever you decide, you’ll feel better knowing you’ve done your homework.

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