401k Rollovers

Written by Jacey Harmon
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401K rollovers occur when an individual leaves a company for any given reason and transfers their assets from the company's retirement plan into an individual retirement plan. 401K rollovers are an important part of your retirement planning when changing jobs. Instead of leaving your investments with your previous employer, 401K rollovers allow an individual to decide where retirement funds are allocated.

Changing jobs can be a stressful part of life but 401K rollovers do not need to add to the stress. Rollovers are as simple as visiting with an objective financial advisor to determine what type of account to transfer the funds into. Visiting with a financial advisor will help determine what type of account to transfer funds into. 401K rollovers typically involve transferring funds into a traditional IRA or possibly a Roth IRA.

Options Involved with 401K Rollovers

One option that can be considered is to leave your investments at your previous employers'. This is an acceptable option but it does have its drawbacks. First, it may be difficult to reach previous employers' plan administrators if you decide to make changes to the asset allocation of your portfolio. Second, if you are a person that changes jobs frequently it will become difficult to keep track of the several different accounts you may have. Finally, most employer plans are limited in their investment options, usually less than 15 mutual funds. A majority of financial advisors offer access to hundreds and even thousands of different investment options.

Transferring funds from your previous employers 401K to your new employers 401K may be suitable option. This option removes the problem of having several different accounts to follow but it does have some of the same disadvantages as the previous option. As noted above, a majority of employer plans have limited investment options.

Another less talked about problem with 401K plans is the difficulty a person may experience in trying to make changes to the portfolio. Transferring funds into an individual retirement account is usually the best option. To start with, there are more options available through most financial advisors. For instance, a standard company plan will have 15 mutual funds available while most financial advisors have access to thousands of mutual funds. Increased control of your portfolio is probably the best aspect to 401K rollovers.


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