What Can You Rollover a 401(k) Into?
- If you want to use the money from your 401(k) to buy and sell individual stocks, you can roll the money over into an IRA at a brokerage account. Once the money has been transferred, you can buy and sell stocks just as you would with a personal account. The advantage of buying stocks with IRA money, however, is that you do not have to pay taxes on any capital gains or dividends along the way. You only pay taxes when you take the accumulated funds from the account and start using them for income in retirement.
- If you prefer to use diversified mutual funds for your 401(k) money, you can roll the funds over into an IRA with a mutual fund company. After the money is transferred, you can use it to purchase shares in any funds the company offers. This gives you added flexibility and makes it easy to diversify your holdings and adjust your asset allocation as you get closer to retirement.
- Investors who prefer the safety and stability of certificates of deposit and money market accounts can roll their 401(k) money over into an IRA at the bank. This option can be an attractive one for those who are nearing age 59 1/2, when they can start taking the money out of the account. Those investors might want to preserve the principal in the account with a short-term CD or money market fund, even though the yield might be lower than other, riskier investments.
- No matter which institution you choose to handle your 401(k) rollover, you need to make sure that things are handled as a direct rollover. A direct rollover simply means that the money goes directly from one custodian to another. So if your 401(k) is administered by ABC Brokerage and you open a new IRA with XYZ Brokerage, the money goes straight from ABC Brokerage to XYZ Brokerage, without ever touching your hands. The easiest way to start the process is to contact the new custodian and ask for a transfer form. Simply fill out the transfer form and submit it to the new custodian. They should take care of the rest.
