3 Signs You Should Roll Your 401(k) Into an IRA

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Keeping money in a 401(k) doesn’t always pay. Read on to learn more. 

Saving for retirement is downright essential. Without money in savings, you might end up struggling financially once your career comes to an end and your paycheck goes away.

If you’re offered a 401(k) plan through your employer, you may be inclined to contribute to it. After all, funding a 401(k) couldn’t be easier. You simply tell your employer how much you want to contribute per pay period, and that money is deducted from your paychecks so you don’t have to actively put it into your retirement plan yourself.

In many cases, saving in a 401(k) makes a lot of sense. But if these situations apply to you, you may want to consider rolling your 401(k) into an IRA instead.

1. You’re leaving your job

The start of a new year can be a good time to look for a new job. It’s a time when new initiatives tend to kick off that may require a higher headcount. Also, it’s when company budgets tend to renew, allowing for what could be much higher pay.

If you know for a fact that you’re looking to leave your job in the near future, then you may want to proactively open an IRA and roll your 401(k) balance into it once you’ve tendered your resignation. While your employer might allow you to leave your money in its 401(k) once you’ve parted ways, that’s generally not a good idea. An old 401(k) is a retirement plan you’re more likely to forget about.

2. You’re worried your employer will go under

The U.S. economy is in pretty good shape right now. On a national scale, the jobless rate is just 3.7%, which, historically speaking, is a low level.

Still, your specific employer may be on shaky financial ground. Perhaps your company borrowed money to launch a new product line that failed. Or it may be that your employer has been spending carelessly and is now in a dire situation.

If you have reason to believe that your company is about to fold, then that’s a good reason to open an IRA and roll your 401(k) into it. If your company goes away, chances are, so will its retirement plan, which means you’ll have to move your money somewhere else at some point.

3. You’re unhappy with your 401(k)’s investment choices

One benefit of contributing to a 401(k) is that you get to invest your money and, ideally, grow it into a larger sum over time. But you may not be pleased with the investment options offered in your 401(k). And if that’s the case, that’s reason enough to move your money into an IRA.

IRAs commonly allow savers to invest in individual stocks and pretty much any other type of investment. And doing so could be your ticket to generating solid returns over time if you’re someone who knows a thing or two about choosing companies to invest in.

With a 401(k), on the other hand, you’re generally limited to a mix of different funds that may not align with your preferred approach to investing. When you buy shares of a mutual fund, for example, which is an option you’ll typically find in a 401(k), you don’t really get a say over how your money is invested. Rather, a fund manager gets to make that call. That may not sit well with you, and understandably so.

A 401(k) plan is a great retirement savings tool for a lot of people. But that doesn’t make it the right choice for you right now. If any of these factors apply to you, you may want to think about making a change and rolling your long-term savings into an IRA with a brokerage firm instead.

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