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Pros And Cons Of An IRA Rollover

As part of managing your retirement accounts, you need to occasionally review your accounts and possibly make changes that could have a drastic impact on your future. One of those is determining whether or not an IRA rollover is the right move for you. If you are considering it, here is what you need to know. 

Is an IRA Rollover Right for You?

An IRA rollover involves moving your retirement funds from a 401(k) into an individual retirement account. There are several reasons that this could be a good move for you. 

One benefit is that you have more investment options available to you after the rollover. When your retirement funds are being controlled through a 401(k), the custodian of the plan makes investment decisions for you. As a result, you could end up with investments that perform far less than you want. However, with a rollover, you have the right to choose your investment options. 

Another benefit to consider is that you could face lower fees related to the management of your 401(k). When your funds are controlled by your employer and a custodian, there are often high administrative fees that are associated with it. By contrast, with a rollover, you can cut many of the fees and contribute those savings towards your retirement accounts. 

In addition to these benefits, you can completely simplify the task of managing your 401(k). If you switch jobs, you could be faced with dealing with several accounts from each 401(k) investment. By contrast, if you opt to combine your plans into one rollover IRA, you only have to focus on the one. This means less paperwork and a simple process to understand. 

Why Should You Avoid an IRA Rollover?

Even though there are good reasons to consider an IRA rollover, there are some drawbacks. For instance, you lose the advantage of having group buying power. Funds are typically sold as institutional and retail. Without the group provided through a 401(k), you could be limited to just retail funds. 

Another downside to an IRA rollover is that you might not have the same stability that is available through the 401(k). In a 401(k), there is a stable value fund that you can use to store extra funds towards your retirement. Unfortunately, you do not have that same option if you opt for a rollover. 

Consider consulting with a financial planner or adviser prior to making your decision about using IRA rollovers. He or she can assess your retirement funds with you and help you determine whether or not this is the best option for you.