401(k) Rollovers: What to Know at Age 59 ½

May 28

Reaching age 59 ½ marks an important milestone in retirement planning. At this age, you gain greater flexibility with your retirement savings, including the ability to take penalty-free withdrawals and explore options like rolling over your 401(k) to an Individual Retirement Account (IRA). Understanding the benefits of a 401(k) rollover can help you optimize your retirement strategy and align your savings with your long-term goals.

What is a 401(k) Rollover?

A 401(k) rollover involves transferring funds from your employer-sponsored retirement plan into an IRA. Many companies allow for in-service rollovers at age 59 ½, even if you’re still employed. This option provides you with increased control over your retirement savings and potentially broader investment opportunities.

Benefits of a 401(k) Rollover to an IRA

Expanded Investment Choices

Unlike most 401(k) plans, which offer a limited selection of investment options, IRAs provide access to a wide range of investments, including individual stocks, bonds, mutual funds, and exchange-traded funds (ETFs). This expanded selection allows you to diversify your portfolio and tailor your investments to your risk tolerance and retirement goals.

Greater Control and Flexibility

With an IRA, you have more control over how your funds are managed. You can choose a provider that aligns with your preferences, whether you prefer a self-directed approach or professional management. This flexibility helps you create a retirement plan that reflects your unique needs.

Lower Fees

401(k) plans often come with administrative fees and higher expense ratios for investment options. Rolling your funds into an IRA may allow you to reduce these costs, which can have a significant impact on your savings over time.

Consolidation of Accounts

If you have multiple 401(k)s from previous employers, rolling them into a single IRA simplifies your retirement planning. Consolidation makes it easier to track your investments and manage your overall financial picture.

Tax-Free Transfer

When done correctly, a rollover is a tax-free event. By transferring your 401(k) funds directly to an IRA, you avoid triggering any taxes or penalties, preserving the full value of your savings.

Better Protections

401(k)s offer stronger creditor protection from lawsuits and bankruptcy.

How to Complete a 401(k) Rollover

Evaluate Your Options: Decide whether rolling your 401(k) into an IRA aligns with your financial goals. Consider factors such as investment options, fees, and your retirement timeline.
Choose an IRA Custodian: Research financial institutions and select an IRA custodian that meets your needs. Look for features like low fees, investment variety, and customer support.
Initiate a Direct Rollover: Contact your 401(k) plan administrator to request a direct rollover to your chosen IRA. A direct rollover ensures that your funds move seamlessly without incurring taxes or penalties.
Select Your Investments: Work with your IRA provider or financial advisor to build a diversified portfolio that aligns with your retirement objectives.

Important Considerations

Required Minimum Distributions (RMDs): Once you reach age 73 (or later, depending on your birth year), you must begin taking RMDs from traditional IRAs. Plan accordingly to manage your tax liability. Additionally, the 'still working' exemption allows you to delay required minimum distributions (RMDs) if you are still employed.
Roth Conversion: If you’re considering converting your 401(k) or traditional IRA to a Roth IRA, consult a financial professional to understand the tax implications.
Employer Plan Features: Before rolling over your 401(k), review your current plan’s features, such as loan options or matching contributions, to ensure you won’t lose valuable benefits.

Is a 401(k) Rollover Right for You?

A 401(k) rollover to an IRA at age 59 ½ can be a powerful tool for enhancing your retirement strategy. However, it’s essential to assess your individual circumstances and goals. Consulting with a financial advisor can help you make informed decisions and create a comprehensive plan for your retirement savings.

At Greatstone Wealth, we’re here to guide you through every step of your retirement journey. Contact us today to learn more about 401(k) rollovers and how they can help you meet your savings goals.

Kimberli Milhoan