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Most people have heard of rollover 401k’s and rollover IRA’s. This is where you rollover your retirement savings from a previous employer’s 401k plan to another retirement account like your new employer’s 401k plan or an Individual Retirement Account, also known as an IRA. Rollover 401k’s and rollover IRA’s allow you to take your retirement savings with you. You are not required by law nor is it recommended that you leave your retirement savings with an employer for whom you no longer work.

Of the choices between rolling over your 401k into your new employer’s 401k plan versus rolling it over into an Individual Retirement Account (IRA), you should strongly consider the rollover IRA. There are four important advantages to a rollover IRA.

1. More investment choices

401k plans often provide very limited investment choices. Employees are often given a selection of choices among several different mutual funds and other investment options. The selection of choices offered could be ten to twenty in number. However, when compared to the hundreds of investment options available on the market, your employer’s ten to twenty 401k options don’t stand up the wide variety of investment channels available in a rollover IRA.

2. Lower (to no) fees with Rollover 401K

Administering complex 401k plans is always costly. Many of the administration fees within the 401k investment can weaken and steal much of the potential gains. These fees can often be as high as 2.5% (Wall Street Journal, November 12th, 1997, page C1). It is prudent that you look at your paperwork or ask your Human Resources benefits advisor to tell you how much you are paying.

In comparison, rollover IRA’s often have low to no fees. Opening a rollover Individual Retirement Account (IRA) is easy and cheap. The market for rollover IRA’s is very competitive. In fact, national Wealth Strategist, Tony Bass, shows investors how they can earn a 13.68% guarantee the first year due to this highly competitive market.

3. Usually a longer payout option for beneficiaries

Rollover IRA’s allow many potential options for beneficiaries, unlike a 401k plan. One example is the fact that your beneficiaries can often stretch your rollover IRA assets over their life expectancies. Because beneficiaries could potentially face a huge tax burden when they inherit your rollover IRA, the law provides some flexibility that could ease that burden. There are different options available that allow them to avoid the immediate taxation of potentially significant sums of money. This can be done

through the deferral of taxation or by stretching out the distributions over a longer period of time.

4. More flexibility in naming beneficiaries

Naming beneficiaries for your rollover IRA funds may seem like an easy task, however, this is a decision that should not be taken lightly. You can name your spouse, children, grandchildren, another individual, favorite charity, or even set up a trust to receive your rollover IRA assets. In doing so, you should plan your legacy strategy so that the tax consequences for your beneficiaries will not devastate them.

Younger beneficiaries may choose to stretch out distributions over his or her own life expectancy, while a spouse who does not need the assets, can disclaim them (i.e., refuse to take ownership of the assets). The assets will then go to any other named primary beneficiaries.

5. Control of your assets

As you can see from four advantage points above, the key to rollover IRA’s is control. You can control everything from what investment choices you wish to participate in, avoiding plans with high fees, providing your beneficiaries with longer payout options, to even the flexibility in naming your beneficiaries.

On top of that, the government allows you to rollover your IRA’s once per calendar year. Company 401k’s are often restricted from having the ability to rollover their plans outside of the investment choices that are offered by the employer. This lack of choice places the employee at the mercy of the performance of the few available choices offered by the employer’s 401k plan.

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