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More reasons to keep on rolling (to an IRA, that is)


Photo credit: jb

We have discussed in the past that it is usually better to rollover an old 401(k) plan from a former employer to an IRA – more flexibility in investments, (usually) lower costs, more control, etc., are among the chief reasons to do so.

However, in some cases your old 401(k) plan may have access to desirable investments that you couldn’t otherwise access, or possibly you have access to other benefits from participation, such as availability of a financial advisor. As long as the overall costs remain low in the plan, you might want to leave the funds there. Plus there are also some additional benefits inherent within 401(k) accounts that are not available to IRAs – you can read up on the reasons to leave your money in the 401(k) in the article Not So Fast! 9 Special Considerations Before Rolling Over Your 401(k).

On the flip side, there are certain things that you can’t do in a 401(k) (or other Qualified Retirement Plan) that you can ONLY do with an IRA while you’re under age 59½.

IRA-Only Options

With an IRA, there is no penalty for withdrawal for (click the link following each for more detail):

  • Health Insurance Premiums while unemployed – §72(t)(2)(D)
  • Qualified Higher Education Expenses – §72(t)(2)(E)
  • Qualified First-Time Homebuyer Expenses – §72(t)(2)(F)
  • Qualified Reservist Distributions – §72(t)(2)(G)

And none of those are available without penalty from your 401(k). Of course you would have to pay tax on the distribution, but otherwise you can take the money from your IRA for these purposes.

In addition, setting up a Series of Substantially Equal Periodic Payments (SOSEPP) is generally easier to qualify for and to set up from an IRA than from a 401(k), so this may be an additional reason to consider rolling over.


  1. Ed says:

    Mandatory withholding for 401k withdrawals can be a problem, overpaying the irs significantly. That can cause too large a withdrawal and potentially higher taxes.

  2. Dan Danford says:

    One of the main reasons to roll over 401(k)s is simply for the ease of managing the money. Many folks change jobs a lot these days, and it can be a lot to manage to have several pots of money out there with various companies. It also makes it easier on your heirs; it can be a mess for them to understand where your money is if you’ve had a lot of jobs.

    1. jblankenship says:

      Very good points, Dan. However, ease of management should not be the only factor considered – the age of the account owner, investment choices, and presence of post-tax funds in the account should also be reviewed, among other factors, before rolling over the account to an IRA.

      Thanks for the input!


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