Most advisers typically advise their clients roll over a 401(k) when leaving a company. Instead of rolling your old company-sponsored retirement account into a traditional IRA, you will gain greater flexibility and freedom by choosing a Texas self-directed IRA. Most advisers want you to roll your old plan into a traditional IRA account because they earn money in the form of commissions and fees, especially when you invest in various mutual funds. With a self-directed IRA, you will likely pay significantly less in fees because you make your own investment decisions. Moreover, you get to invest in alternative investments. Moving your 401(k) into a traditional account is not the best option. Just as unwise is taking a lump-sum distribution, which results in costly tax penalties. Ask yourself several key financial questions when working with a Texas self-directed IRA company.
Do you need the money before retirement?
If you desperately need money before retirement, you could choose to take a lump-sum distribution. But in most cases, you are better off selling a home and downsizing or taking out loans with a low-interest rate as opposed to cashing out of a retirement account early. Taking money out of a retirement account before the age of 59 and a half typically triggers a 10 percent penalty tax unless your money is in a Roth IRA. If you own a Roth, the best option is to roll the money into a Roth self-directed IRA so your money grows tax-free.
What are your investment options?
If you choose a self-directed IRA, you have many options from investing in tax liens to precious metals, farms and franchises. While you can invest in individual stocks and bonds within a traditional IRA, most investors grow weary of the unpredictable nature of the stock market. After a robust bull market for several years, you likely feel stocks will experience a downturn.
Do you want to pay for advice?
Another downside to rolling money into a traditional IRA is the fact that it often costs to receive advice. Investment advisory services and managed accounts come with higher fees and costs. If you feel comfortable with specific alternative investments such as real estate, opt for a Texas self-directed IRA so you stay in control.
Do you own company stock?
If you own company stock, you have several options. Most experts say it’s foolish to invest too much in a single company. Consider selling company stock so you can rollover the funds into a self-directed IRA where your options are vast. If you have an outstanding loan on a 401(k), that will also affect your rollover. Experts say you typically have to pay most 401(k) loans within 90 days of termination or layoff. However, some brokerage accounts allow you to keep making monthly payments on the loan until it’s paid off. Another option is to pay off the entire 401(k) loan so you have a higher balance for your new self-directed IRA. With the money in the self-directed IRA account, you can buy rental properties, invest in franchises or try a creative investment plan.
Doing your homework before you take a lump-sum distribution from a 401(k) pays off. Most people who take a distribution, spend the money which leads to a retirement savings shortfall. Your goal is to build wealth for your retirement as well as leave a legacy for yourchildren and grandchildren.
At New Standard IRA, we answer questions about individual retirement accounts. Talk to us about how we handle the legal paperwork for Texas self-directed IRA accounts. For more information and tips on how to rollover a former company-sponsored retirement account, please contact us.
