5 Benefits to Know About Rolling Over Your 401(k)

rolling over your 401(k) A 401(k) is a company-sponsored retirement fund that your employer provides. Money is pulled from your paycheck - if you choose to participate - and put in a retirement account, distributed into holdings you pick.

Some companies will match your contribution, up to a certain amount. For example, if you put in 6% of your paycheck to a 401(k), your company might match 50% of that.

But once you retire, you will face a major decision regarding your 401(k). You'll be able to keep the money in the 401(k), cash it out, or roll it over to an Individual Retirement Account (IRA).

However, if you opt to keep your money in the 401(k), you will no longer be able to contribute to it. Or if you cash out, which is rarely if ever a good idea, you will have to pay taxes and penalties on the money withdrawn.

That leaves the final option, rolling over your 401(k) into an IRA. Here are the five benefits of doing so...

Benefit of Rolling Over Your 401(k) No. 5: You'll Have More Investment Options

The 401(k)s that your employer offers limit you to a small amount of investment options. According to NerdWallet, that could mean as little as "a curated selection of 20 or 25 investments."

But with an IRA, investors can put their money in virtually any stock, bond, mutual fund, index fund, or exchange-traded fund.

Also, by having more options, investors can develop a stronger long-term strategy to successfully grow their retirement savings.

Benefit of Rolling Over Your 401(k) No. 4: You'll Be Less Dependent on Employer Stock

In 2014, the Vanguard Group did a study to look at a number of 401(k)s offered by Washington, D.C., companies that include stock options from the company itself. During their research, they found that in 2011, 9% of plans in the D.C. area contained stock options in the company supplying the plan.

This seems like a good idea. As an employee, you might feel more motivated to contribute to the success of your company when your financial interests are even more in-line with the business than if you just got your salary from it.

However, according to MSN Money, "investors who hold substantial stakes in employer stock court risks on several levels."

And according to Morningstar, "employees who invest heavily in company stock have both their human capital and financial capital riding on the fortunes of a single company; difficulties at their employer could cause their stock shares to sink at the same time they suffer job loss or an income reduction."

Not to mention a 401(k) heavily weighted in a single stock, in this case the employer stock, causes the portfolio to be more volatile than one that is more diverse.

Benefit of Rolling Over Your 401(k) No. 3: You Can Consolidate

rolling over your 401(k) According to the Bureau of Labor and Statistics, "the average worker currently holds ten different jobs before age forty." Additionally, the Bureau notes that today's youngest workers will hold 12 to 15 jobs in their lifetime.

That means the average American worker could end up with several different 401(k) accounts. By rolling them all over into a single IRA, investors could easily check in on and change their investments.

Not to mention, if you invest through multiple providers, you may pay more fees than necessary.

And according to Fidelity, "the more assets you have with one financial provider, the more opportunities you may have for reducing or eliminating account fees and lowering investing expenses."

Benefit of Rolling Over Your 401(k) No. 2: You Can Pay Less in Fees

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A 401(k) has administration fees. These are expenses for basic services such as record keeping, accounting, legal, and trustee services. These fees cut into your investment returns over the years. And they are especially hurtful once you retire or leave the job because some 401(k)s, according to U.S. News, "charge an extra maintenance fee once you are no longer an employee."

But the chance to roll over your 401(k) and open yourself up to more investment options lets you shop around for funds with lower fees.

For example, if your employer-sponsored retirement plan operates with an annual fee of 0.3%, you could save a good portion of money by investing in the Vanguard Total Stock Market ETF (NYSE: VTI). It operates with a 0.05% annual fee, saving you .25% annually, which can really add up in the long term.

Benefit of Rolling Over Your 401(k) No. 1: You'll Have More Control Over Your Investments - and Achieving Financial Freedom

Your 401(k) investment choices and fees can change in a moment's notice. According to CBS News' "60 Minutes," 401(k)s can cause "millions of people to lose 30-50 percent of their life savings just as they near retirement" because a 401(k) can fall with the stock market.

You might feel your 401(k) doesn't give you adequate options for protection from a dip in the market, where your IRA offers more defensive investments.

It might seem like making investment decisions with your retirement account is overwhelming, but do a little reading and you'll know enough to put yourself in a financial position you are comfortable with. Check out "Investing for Beginners: A Guide for the New Investor" to help you get the most out of your IRA.

Up Next: An $80 Billion Cover-Up? Under the watchful eye of Congress, the government will soon be implementing a controversial plan that threatens the retirement of millions of Americans.  And they're using an obscure loophole buried in Title 29 of the U.S. Labor Code to do it. If you have a 401(k), IRA, or any type of retirement account, this could cause you to miss out on $68,870 or more. Learn more...

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