Robert Snow joined Morgan Stanley in Houston in October 2008. Since that time, he has risen to the role of Senior Vice President and Financial Adviser. For over 20 years, Robert has been helping Texans to plan for their future and make their present brighter. Rob Snow assists in explaining how rolling your 401(k) retirement plan into an IRA can provide flexibility in the types of investments you can choose. In this article, we will review the benefits of rolling your 401(k) into an IRA account.
Rolling your 401(k) into an IRA gives you more flexibility in the types of investments you can choose. There are a couple of choices in IRAs, such as a Roth IRA or a traditional IRA. Knowing which one to choose, or even whether you should roll it over at all, is often influenced by what you have now, where you’re at in life, and what you want from your retirement accounts.
Why would you roll over your 401(k)?
If you leave your employer, you might need to roll your 401(k) over to a retirement solution that’s not linked to your employer.
Moving to a new employer: If you’re moving to a new employer, you can move your 401(k) over to the new employer's investment firm, if there are advantages. For example, if there aren’t enough investment choices at the new employer, you might decide to move your 401(k) to an IRA.
Retiring or no new 401(k): If you’ll no longer going to have access to a 401(k), you’ll need to move your money to an IRA.
Many 401(k)s charge 3% per year because they are covered by a variable annuity contract that acts as a layer of insurance. IRAs tend to be less expensive because most don’t provide that layer of protection.
Some details on IRAs
As a rule, you’ll move to the same type of IRA that you have for a 401(k). If you have a Roth 401(k), choose a Roth IRA. For a traditional 401(k), choose a traditional IRA. You can make the change from tax-free to tax-deferred, but there might be some unpleasant losses to taxes now. Keeping the same types of retirement accounts keeps the tax implications consistent.
Most IRAs allow you to invest in almost any asset: stocks, bonds, mutual funds, exchange-traded funds (ETFs), certificates of deposit (CDs), real estate investment trusts (REITs), annuities. With self-directed IRAs, you can expand your portfolio even further with even more assets, Iike gas and oil leases, commodities, and physical property.
A traditional IRA allows you to make tax-deductible contributions; your current contributions are tax-deductible now. You pay taxes on your IRA withdrawals. You pay tax on the earnings as well. Also, you’re required to withdraw money at age 72 and after, even if you don’t need the funds. This is the Required Minimum Distributions (RMD) rule, as set by the federal government.
A Roth IRA treats the entire account as taxable now, while you’re working. This means you pay the tax on your income and any earnings as they happen. When you begin your post-retirement distributions, you’ll withdraw money tax-free. This is very popular for those who want to maximize their retirement funds; there’s no tax deduction from their money when they’ve stopped working.
A Roth IRA also lets you leave the money in the account, tax-free, indefinitely. There are no lifetime distribution requirements. You can even give the IRA to your heirs and the money grows tax-free. Heirs are required to withdraw the funds over a 10-year period after your passing under new rules established by the Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019.
If you have a Roth 401(k), it’s only common sense to rollover to a Roth IRA since the income in the 401(k) is already tax-free. You can roll a traditional 401(k) to a Roth IRA, but there will be some complex tax implications. This might make it worth talking to a retirement adviser.
Choosing an IRA
For most people, choosing an IRA is dependent on several factors:
● Where are you financially versus where you expect to be after retirement
● What tax bracket are you in now?
● Are you in a traditional or a Roth 401(k) now?
If you’ll need your money in the next five years and you’re in a high tax bracket, you might want to choose a traditional IRA. The taxes will be paid when you take money out. Since you’re not in a position to let the money grow tax-free, you might as well save the tax now and handle it in a few years.
If you’re starting in a lower tax bracket but will make more money later and be in a higher tax bracket, you might go ahead and pay the taxes now and put everything into a Roth IRA.
If you’ll need the money before 59 ½, you can expect to pay a 10% penalty plus taxes on anything you withdraw. There are some exceptions, like buying a house, but otherwise, there are some expenses to withdrawing money from an IRA. Withdrawals from a Roth IRA are never taxed, so you might choose a Roth IRA if you think you might need the money before 60 years old. You do need to hold the money for five years, or you'll be taxed and you might pay a 10% penalty.
You can split your money between a traditional and a Roth IRA to get tax benefits from both sides. You don't have to split it 50-50. There might also be a great mix of investment options that can grow your money.
Staying where you are
In some cases, your former employer may offer to keep your 401(k) in place when you leave. This can work. The biggest question is are there better investment options for you in another program? If not, keep your 401(k) in place may work.
If you’re doing well with your 401(k), that might also be a reason to stay the course. There are some tax advantages and there are financial protections for your 401(k) that keep your money in place in the event of bankruptcy or lawsuits.
Getting personal advice
As you can tell from this article, a 401(k) rollover is easy to do, but making the right choice as to where to go with it can be complex. It’s worth speaking to a retirement adviser you can trust who can help you make the right choice for your needs, and factoring in your entire retirement and investment portfolio.
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About Rob Snow
Rob Snow (CRD#: 3203253), a registered representative with Morgan Stanley in Houston, Texas. Rob has helped his clients to achieve their financial goals by investing effectively. Robert Snow is a business graduate from the University of Houston who found his passion in the finance industry.
Throughout his work life, Rob Snow has maintained a disciplined way of investing as he focuses on long-term financial goals. He has been through some of the major shifts happening in the global financial market. The whole knowledge and expertise have resulted to build and protect high net worth individuals.
Robert’s main rule is his time-tested way of doing business. Morgan Stanley’s true foundation is its guarantee of sound investments made through professional research.
Robert Snow’s top services include:
Financial advisors can help you determine an asset allocation strategy to help you reach your goals, then put those strategies in place. The Financial Advisor can also work with your tax and legal advisors to help create a personalized plan that helps minimize your taxes, incorporates estate and philanthropic goals and covers your future health-care needs.
Financial advisors specialize in serving certain types of clients. When choosing a financial advisor, it’s important to keep in mind whether you’re looking for someone to help you get ready for retirement or protect your wealth.
Morgan Stanley has an exceptionally large team of 16,000 wealth management representatives. However, Morgan Stanley makes it easy to sift through its thousands of advisors to find the right fit for you.
For most municipal bonds, high yield and tax-efficient equity accounts, as well as financial planning services, there’s a $250,000 minimum for Morgan Stanley’s Fiduciary Services program.
401 (k) rollover
When you rollover your 401(k) to an IRA, you may want to consider Morgan Stanley Access Investing, where you can choose retirement as your goal and set an expected time frame until you retire.
Robert’s way of working includes detailed research according to your given portfolio as his expertise is not only to assist in investments but to increase your net worth as well. Not only he is the financial advisor but he also assists people in raising their capitals by offering mergers as well.
According to the current global market, Morgan Stanley has presented its new proposal for sustainable investing as well. Robert Snow’s time tested approaches and inclusive innovation sustainable investing is the future boom for many investors. Even people tend to support such investments that can help the environment too. With their sustainable investing, Robert Snow’s goal is to reduce 50 million metric tons of plastic waste from water and land till 2030