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3 Benefits of a Direct 401k Rollover Into a Roth IRA

There are many benefits of a direct 401k rollover into a Roth IRA. A 401k retirement plan is severely limited in the different amount of options that investors can choose to invest in, but that is not true for a Roth IRA. Roth IRAs provide investors with an incredibly large array of investing choices. This has made direct 401k rollovers to a Roth IRA incredibly popular for investors who want more options, control, and tax benefits. A direct rollover from a 401k to a Roth IRA skips your handling of the money and ensures that you will not be penalized by delaying the deposit of money into your Roth IRA account.

3 Reasons to do a Direct 401k Rollover into a Roth IRA

benefits of direct 401k rollover to Roth IRALooking for a place to transfer your 401k to? Here are 3 great reasons a Roth IRA is one of the best spots for your rollover.

Roth IRAs Have More Investing Options

Typically, Roth IRAs have more investing options than 401k retirement plans. Most employers only provide employees the option of a few investment options in a 401k retirement plan. But, investors in a Roth IRA can typically designate any mutual fund to be a Roth IRA. A Roth IRA is more of a tax classification for a specific mutual fund or investment instead of the investment itself. There is almost no limit to the types of investments that you can participate in with a Roth IRA. You can even choose to invest in such diverse items like real estate, individual stocks, and bonds with a self-directed Roth IRA.

You Have Control Over Your Investments

With a Roth IRA, you have more control over your investment options. You can decide when to buy, sell, and move your investments with a Roth IRA. You do not typically have these types of options when you invest in a 401k retirement plan. With a 401k retirement plan, you are limited to the types of investments or mutual funds that are offered by your company’s 401k retirement plan and the investment company that runs the plan for your employer. You also can be charged hidden fees by your 401k plan. You have complete control over a Roth IRA. You are able to decide which types of investments to participate in and change your decisions at any time you see fit to do so. You can decide which brokerage to use and what fees you are comfortable paying.

A Roth IRA Shifts And Reduces Taxes

Roth IRAs provide investors with the ability to withdraw not only their contributions but also their earnings, interest, and dividends tax free in retirement. 401k retirement plans are a tax deferred retirement plan where investors will pay taxes on their withdrawals in retirement at their tax rate at that time. While 401k contributions withdraw total taxable income when the money is invested, investors could ultimately pay a higher amount of taxes in retirement if they are in a higher tax bracket later in life. A direct rollover of investments from a 401k retirement plan to a Roth IRA can help save on taxes if your tax rate increases throughout your lifetime. A direct 401k rollover into a Roth IRA provides investors with several benefits that they can take advantage of. A 401k rollover into a Roth IRA allows investors to have more control over their investments while giving them more investing options with the benefits of a Roth IRA’s tax free withdrawals in retirement. 

Photo by Hub Figuiere via Flickr

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