IRA vs 401K Advantages/Disadvantages

4 replies
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I'm retiring soon with a employer 401K, I read somewhere that there are certain advantages and/or disadvantages in rolling it over to an IRA? Would appreciate any insight.

Bsch4477

Level 15

You can research this yourself. Here’s one article to get you started.

https://www.google.com/amp/s/www.kiplinger.com/article/retirement/t032-c000-s002-pros-and-cons-of-rolling-your-401-k-into-an-ira.html%3Famp

wkbinpaAuthor

Level 2

Just what I was looking for -- Thank you! Much appreciated!

Opus 17

Level 15

Briefly:

Your investment options may be more limited in the 401(k) as dictated by your employer. An IRA can invest in anything. (This can also be risky if you invest in stupid things.)
However, the funds offered by your employer may be "institutional class" and have lower fees than funds available in a private IRA. An IRA may also charge higher management fees.
If you are between the ages of 55 and 59-1/2, you can withdraw from the 401(k) without the 10% penalty after you retire, but if you roll the money over into an IRA, you can't withdraw without a penalty until you turn 59-1/2.
If you are under the age of 59-1/2, there are certain exceptions to the early withdrawal penalty that apply to IRAs but not 401(k)s (like first time home buyer).