New Job? Congrats!! But did you forget something?
There is no "Corporate Ladder" anymore...
It's not like the old days where our parents stuck with a company from graduation through retirement. Through our 20s and 30s, our ambitious Millennial generation has become known for "job hopping," staying at each job for an average of less than 3 years (compared with an average 4.4 years for the overall average population)*. In each of those career building moves, we have probably opened and funded a 401k/403b to max our employer contributions. Kudos on that! After all, free money is still free money.
But more often than not, 401(k)s rack up a ton of fees that are hidden, buried, call it what you like, but they are invisible (even in the fine print).
If the word "fees" didn't get your attention, look away from your Instagram feed and here are 5 more reasons to roll your 401k into an IRA:
1) Do What You Want: More Investment Options
401ks have a pre-selected group of funds from which you have to choose. IRAs allow you to explore a whole world of investment options including stocks, mutual funds, individuals bonds and ETFs. This allows you to invest according to your unique financial goals, needs and timeline. You can therefore follow your own investment philosophy or one that you develop with a financial professional.
2) It's Cheaper: Transparency of Fees
We said it before but we'll say it again because all too often we find that individual investors assume that if they can't see it, it's not really there. Doh! IRAs don't actually cost anything to set up, it's the investments within them that may be charging fees. Thanks to the world of low cost ETFs and no-load mutual funds, it can be much more cost-effective to implement your investment strategy in an IRA than a 401K which usually have insane operating expenses that eat into your return.
3) Saves You From Yourself: 10% Early Withdrawal Penalty (YES! This is an advantage.)
There are many nuances to why borrowing from your 401k is a phenomenally bad idea for an individual investor. So the fact that IRAs penalize you to borrow from yourself is actually a great deterrent to doing so. As disciplined as you may be, it never hurts to have a fail-safe device in place to keep you accountable to the security of your future. After all, you've worked so hard for it.
4) Invest in What You Believe In
IRAs allow you to invest in individual stocks. Not that we encourage single stock investing, because without the supervision of a professional, it's not usually a successful strategy. However, for the sake of an example, suppose you are extremely passionate about solar energy, you could technically invest A SMALL PERCENTAGE of your overall account value towards a company whom you feel is making great strides in the advancement of solar energy. There are many more example of course but please take caution when investing in single stocks.
5) Monthly Check in the Mail- Woohoo!
For those of you who are approaching retirement age and prefer getting a check in the mail every month, IRAs are a great choice. You can purchase an annuity in your IRA that distributes a monthly income check essentially setting up your own pension fund within the account. With social security looking bleak for our generation, this option will have a lot of merit down the road.
Hopefully by now we are preaching to the choir and you're google'ing the phone number of your old company's Benefits Department to request a roll from your 401k to your newly set up IRA.
So what should you do first? Set up an IRA online or with an advisor.
Keep in mind you can consolidate the 401ks from any prior employer all into the same IRA. This is an inherent benefit because it's much easier to keep track of it all with everything all in one place.
A final note: your ex-employer can send the check directly to the new firm where you've opened your IRA or they can send it to you, but either way it must be deposited within 60 days or it'll count as a distribution and you'll have to pay taxes on the entire amount.
Alright, so we've told you....now go do it!