IRAs vs. 401(k)s

Both IRAs and 401(k)s can be good rollover options. When you’re deciding between the two accounts, you’ll have to consider the details. The two retirement savings options differ in a few ways:

Administration. IRAs are self-directed, which means that you are responsible for choosing your investments and following the rules laid down by the government. Having this responsibility and autonomy—and avoiding administrative fees—may appeal to you. But, if you are less inclined to tend to your plan without the convenience of a plan administrator, you might opt for a 401(k).

Withdrawal rules. You can begin withdrawing money from your IRA as soon as you turn 59½—even if you’re working. Or, you can wait to begin withdrawing, if you’d prefer to keep earning on the full balance of your account and postpone paying income tax on your withdrawals. With a traditional IRA, you must make your first withdrawal by the April of the year after you turn 70½. With some employer plans, you must begin your withdrawals as soon as you retire. But keep in mind that you may roll over your 401(k) balance into an IRA as soon as you retire.

Rollovers. You can roll your 401(k) into an IRA and vice versa. You may make one indirect rollover or an unlimited number of direct rollovers into an IRA per year. You can roll over a 401(k) when you switch jobs. However, keep in mind that every time you roll your money into a 401(k) you may have to wait a year to before you are eligible to participate in your new plan.

Investment choices. With a 401(k), your investments are limited by those offered though your employer’s plan. With an IRA, you can choose to invest in a wide variety of financial products . You can set up an IRA at almost any brokerage firm, mutual fund company, or other financial institution. But with more investments to choose from, you assume greater responsibility for your investment portfolio. And, you may face additional costs and fees that accompany these investment choices.