LTA Advisers US Specialist Information Center offers bespoke financial planning solutions to US connected persons. This may include 401k rollovers to IRA’s, as our passion is creating goal-oriented financial plans, tailored to the specific needs and requirements of our clients.
401 (K) ’s
A 401(k) is a retirement plan that's made available to employees who wish to save for their retirement (provided their employer offers a plan). Contributions are held back from part of your salary (tax-deferred) and invested within the scheme. The majority of the plans feature an element of employer contributions with contributions typically being matched. Since 401(k) plans are intended to encourage retirement savings, there are heavy tax penalties imposed for early withdrawals (before age 59½).
An individual retirement account (IRA) is a savings account with tax advantages that individuals can open to save and invest in the long term. Anyone who has earned income can open an IRA and enjoy the tax benefits that these accounts offer. Unlike a 401(k), however, individuals can open an IRA without involving their employer - hence the name individual retirement account. Types of IRAs include tradtional IRAs, Roth IRAs, Simplified Employee Pension (SEP) IRAs and Savings Incentive Match Plan for Employees (SIMPLE) IRAs.
Roth IRA's - Qualified Roth IRA distrubtions are not subject to state and local taxation in most states.
Simple IRA's - Withdrawals are suvject to ordinary income tax and may be subject to a federal penality if taken before 59½. The federal penality increases to 25% if taken during the first two years of plan membership.
Advantages of rolling your 401k into an Individual RetirementAccount (IRA)
Wider selection of investments: Your 401k is likely limited to a small sample of the investment options that are available.However, with an IRA, most types of investment are available to you, including not justmutual funds, but also individual stocks and exchange-traded funds (ETFs). Having moreoptions can help you develop a better long-term strategy for your retirement savings.
Lower costs: 401(k)'s can often incur large fees that can negate the tax benefits and growth. It is essentialto understand if you could save more by using an IRA.
Flexability for withdrawls: Rolling your money into an IRA will enable you to manage your withdrawals and taxes you’llpay on them. In addition IRA’s could offer more flexibility in determining which assets toliquidate vs a 401k which typically take an equal amount out of each of your investments.
More control: If you find that a fund in your 401k is not performing well, you may not be able to findanother investment option to switch to as easily as you can with an IRA.
Wealth transfer advantages: Upon death, there's a good chance that your 401k will be paid in one lump sum to your beneficary. An IRA generally allows you to name multiple beneficaries - or even a trust as a beneficary.
Fewer restrictions: Understanding your 401k is not easy – each company has a lot of flexibility in how they setup the plan. IRAs are standardized by the IRS. Ultimately, there are pros and cons to boththe 401k and IRA models.
Disclaimer: LTA Advisers and its affiliates and employees cannot and do not provide tax, legal or accounting advice. The above content has been prepared for informational purposes only, and is not intended to provide, and shouldnot be relied on for, tax, legal or accounting advice. You are advised to discuss the specific tax and social security implications of this brochure, if any, with your own independent professional tax, legal, and accounting advisors.