Deciding whether it is advantageous to roll over a qualified retirement plan account (e.g. 401(k) account) to a IRA depends on the taxpayer’s specific circumstances. However, there are some general advantages:
1. Postmortem Tax-deferral Opportunities. Beneficiary designations as of the date of the owner’s death control the availability of various postmortem tax-deferral opportunities. Therefore, it is important to set up these designations to maximize those opportunities. Greater flexibility generally is afforded in beneficiary designations for IRAs and in stretching out the tax-deferral period.
2. Investment Choices. Although some qualified plans offer self-directed accounts, many restrict the available investment choices. However, most IRA providers offer their entire investment portfolio for the participant to choose from.
3. Availability of Taking Withdrawals. While most qualified plans restrict the availability of withdrawals, IRA withdrawals are available at any time and in any amount.
4. Investment Advice. While in recent years the availability of investment advice offered to qualified plan participants has expanded, IRAs generally will offer greater availability. However, the cost of that advice should be compared to the services that are being provided.
5. Control over Funds. When funds are maintained in a qualified plan, the employer has the right to amend discretionary provisions in the plan, including the right to terminate it. This is not the case with an IRA.
Please contact us if you have questions about qualified plan rollovers or the tax aspects of retirement savings.
IRS Circular 230 Disclosure: To ensure compliance with requirements imposed by the Internal Revenue Service Circular 230, we inform you that any U.S. federal tax advice contained in this communication (including any attachments) was not intended or written to be used, and cannot be used, by any person for the purpose of (i) avoiding tax-related penalties or (ii) promoting, marketing or recommending to another person any transaction or matter addressed in this communication.