If you have a workplace 401(k) and you leave your job, there are different things you can do with the money in your retirement plan. Finance expert Dave Ramsey recommends one particular option above all others: a 401(k) rollover.
Rolling over your 401(k) means moving your money from your former employer’s retirement plan into a different retirement plan.
You could roll over the money into a new employer’s workplace plan or into an IRA you open with a brokerage firm. Moving the money into an IRA is what Ramsey suggests, and he names three big benefits of this approach that are worth considering. Here’s what they are.
1. Managing your investments will be easier
If you leave multiple jobs throughout your career, you could end up with lots of different 401(k) plans with different employers. As Ramsey explains, keeping track of all of these old accounts could be really difficult. But if you move all of those accounts into one IRA, it will be easier.
“The more scattered your retirement accounts are, the harder it is to make good decisions about your investments — and that can affect your retirement future,” Ramsey warned.
But if you roll over your accounts and put all the money into one IRA, Ramsey explains you won’t have that problem. “You’ll be able to manage your retirement funds better by having them all in one place.”
2. You’ll have a broader mix of investment options
When your money is in your employer’s 401(k) plan, you can only invest in the assets that plan makes available. This could be a limited range of funds, which may have high fees or not be well-suited to your investment goals. This narrow range of choices isn’t the ideal investment strategy for most people.
“The more investment options you have, the more likely you are to make better decisions,” the Ramsey Solutions blog reads. “That’s why Dave likes to say if you have two bad options in front of you, go look for better ones!”
Rolling over a 401(k) into an IRA — instead of leaving the money with your old employer or moving it into your new employer’s plan — opens up the door to many more investments than a 401(k) would offer. You can find those better investments Ramsey was talking about.
In fact, when you pick a brokerage firm for your IRA, you can select from a wide range of financial institutions that offer access to lots of different kinds of investments, from stocks and bonds to mutual funds to cryptocurrencies and beyond. You will have far more choices about where to put your money and can pick the investments that are right for you.
3. You’ll have more control
Finally, Ramsey explains that added control over your retirement funds is the last key reason why rolling over the money to a brokerage account makes sense. You get to pick exactly where the money goes — as long as you move it into an IRA so your decision doesn’t cause tax consequences.
“If you already have an investment professional, a 401(k) rollover allows you to move those funds into an account that’s already under their management,” Ramsey explained. “That way, you can work closely with your advisor to invest that money the way you want to.”
Or, if a managed account isn’t right for you, you can still pick which broker will hold your investment dollars. The chance to select where to open your account and what to invest in — combined with the fact you can keep all of your money together — makes a 401(k) to IRA rollover the best choice.
