There are many benefits of a direct 401(k) rollover into a Roth IRA. A 401(k) retirement plan is severely limited in its investment options compared to a Roth IRA. The result: more options and control. There are also tax benefits.

A direct rollover (also called a trustee-to-trustee transfer) from a 401(k) 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.

Looking for a place to transfer your 401(k) to? Here are three great reasons a Roth IRA is one of the best spots for your rollover.

1. Roth IRAs Have More Investing Options

Typically, Roth IRAs have more investing options than 401(k) retirement plans. Most employers provide relatively few investment options in a 401(k) retirement plan. Investors in a Roth IRA can typically buy into any mutual fund for a Roth IRA.

There are relatively few limits to the types of investments that you can participate in with a Roth IRA. Open a self-directed Roth IRA and you can even invest in real estate, individual stocks and bonds, and gold.

2. You Have Control Over Your Investments

With a Roth IRA, you have more control over your investment options than in a 401(k) retirement plan. You can decide when to buy, sell and move your investments.

With a 401(k), you are limited to the types of investments or mutual funds that are offered by your company’s plan and by the investment company that runs the plan for your employer. You also can be charged hidden fees. 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.

3. 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. By contrast, 401(k) retirement plans are a tax-deferred retirement plan; investors must pay taxes on their withdrawals in retirement at their tax rate at that time.

While 401(k) contributions reduce 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 401(k) retirement plan to a Roth IRA can help save on taxes if your tax rate increases throughout your lifetime.

Just be aware that when you convert money from a pre-tax retirement account such as a 401(k) to a Roth, you have to pay taxes on it. This requires careful consultation with a financial advisor about the amounts to convert and the timing. [The only exception is if the 401(k) in question is a Roth 401(k).]


A direct 401(k) rollover into a Roth IRA provides investors with several benefits that they can take advantage of. A 401(k) rollover into a Roth IRA allows investors to have more control over their investments while giving them more investing options. There are also the benefits of a Roth IRA’s tax-free withdrawals in retirement and the absence of required minimum distribution requirements.

Just factor in the cost of paying taxes for the transfer unless you are making that transfer from a Roth 401(k).

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