Why You May Want To Open A Rolling IRA If You Quit Your Job
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If you are quitting your job, there are a lot of things you need to think about to make sure your financial issues are aligned. One of the most important steps you may need to take when leaving your current position is to open a Rolling IRA.
An IRA rollover is a special type of investment account that you can open at most brokerage firms. But why would you need it when quitting your job? Here’s what you need to know.
Why would you open an IRA rollover after you quit your job?
Opening an IRA rollover gives you a place to move your 401 (k) funds after you quit your job.
See, a lot of people invest in a 401 (k) workplace for retirement. The money you put into this account is yours. And your employer can also make contributions that you can keep as long as you are fully vested (your employer’s policies set the vesting schedule).
When you quit your current job, you can usually keep your money invested with the 401 (k) company. This is not always the case, however. If the business closes and will no longer administer a 401 (k) plan, you may not be able to keep the money invested in your checking account. And if your account balance is low enough, you may also need to transfer your money.
Even though you can keep your money in your current 401 (k), there are a number of reasons you might not want to:
- Having a bunch of old floating 401 (k) accounts could increase the chances that you forget some of them and lose access to some of your retirement money.
- It’s harder to keep track of your asset allocation if your retirement investments are spread across a bunch of different accounts
- Your 401 (k) may have high management fees, which reduce your potential returns
- 401 (k) accounts generally have very few investment options
You also have the option of withdrawing the money from your employer’s 401 (k).
However, you don’t want to just withdraw the funds. This could result in an early withdrawal penalty, taxes on funds distributed at your regular tax rate, and the loss of the opportunity to invest for your future.
And, while you can transfer the money to your new employer’s 401 (k), it could also leave you in a situation where you pay high management fees and have limited access to different types of investments.
Opening an IRA rollover might be the best solution for managing your 401 (k) money. You can transfer your money from the 401 (k) to the IRA rollover without incurring any kind of tax penalty. And, you can choose which brokerage firm holds your new IRA. You can then invest the money in all the assets offered by the brokerage company in order to have much more flexibility.
If you want more control over what you invest in, start researching rolling IRA account options as soon as possible. When you plan to leave your current position, open one as soon as possible so that you are ready to transfer your 401 (k) to the new account when you leave.
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