IRA vs 401k Plans and What to Consider

IRA vs 401k? This is the question you should be considering as you rollover your previous retirement accounts. Do you want to eventually have those funds invested in a new employers 401k or stay in one of your individual retirement accounts? As usual, the answer boils down to personal circumstances, but lets take look at some of the benefits of both.

To start off with, we must specify that the individual retirement account option is a standard IRA, not a Roth. Since the retirement money is being moved from a previous tax deferred account, placing that money in a Roth would trigger taxes and a heavy early withdrawal fee of 10%. This must be avoided at all cost.

No, the retirement account we are referring to is a traditional IRA, which still leaves many options to choose from. It could be a self directed individual retirement account, which will allow you to invest beyond the typical stock and bond market, a bundle of retirement accounts with different investment strategies, or a simple IRA with all of your funds placed in index funds.

Now that that is established, we need to take a closer look at what can benefit you most in the IRA vs 401k argument.

One area to examine closely is flexibility of retirement account. As you can tell from the earlier need to define our IRA, there are many options when it comes to an individual retirement account. And while that may seem overwhelming at times, options and flexibility are very important when planning your retirement.

401k's on the other hand can be limited to only the specific programs offered through your employer. If those investment choices are top notch and coupled with a little financial planning analysis, then it might be a good idea to consider an ira rollover into 401k in the future.

The truth is that very few company sponsored programs offer investment options that are better then IRA options. In addition, many 401K plans contain programs that have a heavy management fee that can sap your retirement account earnings. Since an individual account offers a multitude of investment choices, it can be easier to avoid mutual funds with those issues.

Another item to consider when looking at the IRA vs 401k decision is how much time you have to research your investment choices. A company sponsored retirement account is fairly structured from the beginning, which means you can make a few simple choices and have your money invested quickly and earning you dividends. An IRA might have to many choices, which leads to avoiding making a decision as you deal with the business of everyday life, and postponing the needed investments.

As you can see, there is no easy decision when looking at completing a rollover into an IRA vs 401k. Take a look at your personal needs and make the decision from there. The most important thing is to have your funds invested and earning you money for your future retirement.