401k Rollover to Roth IRA

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In recent years, many employees have elected to set up a 401(k) plan with their employer. This is an employer-sponsored savings plan with allows a person to defer taxes on the money placed and earned in the plan until it is withdrawn.

Most often the holder of the account has a portion of his or her paycheck withdrawn to be placed into the account. The employer then matches that contribution with a certain amount, typically between 50-100%. While a 401(k) is better than no savings plan at all, there are many advantages to converting it, or rolling over, to an IRA.

One big reason is the flexibility of the IRA account. A 401(k) is typically limited to certain assets and company stock, while an IRA can have stocks and bonds of the account holder's choosing, a comparatively wide array of mutual fund choices, and many other alternative investments such as real estate.

A self-directed IRA is even more open to diverse assets, giving the holder of the account many ways to diversify the account. Having a diversified portfolio means there is less risk that all will go bad at one time, and greater returns can be had. Another aspect of flexibility is the ability to withdraw funds before the age of 59 1/2, while 401(k) accounts have very limited choices until after that age. Of course, taxes and penalties are likely to be incurred at early withdrawal, but it's always better to have more choices.

Another positive aspect of IRA's is the ability to convert to a Roth IRA. In a Roth IRA, the contributions are made with money that has already been taxed and it is then never taxed again after withdrawal. This is good for those who expect to be in a higher tax bracket later on. It may seem nice to place tax-deferred money into the account, but why do that when it'll all get taxed later on, and likely at a higher rate? There is no way to have a Roth 401(k) account.

IRA plans also allow the ability to consolidate multiple 401(k) accounts into one. This has many benefits which are mostly related to convenience: one account means it's easier to understand all the investments contained in it, less confusion, less paperwork, less time wasted trying to make sense of multiple accounts, and so on.

Finally, with an IRA, clients get trained professional people to help manage the account. With a self-directed IRA, the account holder has a custodian who makes sure everything is legal and complies with regulations, but is not allowed by law to give any investment advice.

401(k) plans, on the other hand, are handled by Human Resource Representatives. While they might be professional and know their job, the employee chooses this representative as opposed to the employer This means that the company interests are the top priority and all employees with a 401(k) plan in that company are placed under the same "blanket" so to speak. It is also unrealistic to switch to someone else for those who are unhappy with their account managers.

Ephren W. Taylor II first revealed his extraordinary knack for making money at age 12 and he hasn't slowed down since. He was a self-made millionaire while still in his teens. In his twenties he became the youngest African-American CEO of any publicly traded company ever, City Capital Corporation (CTCC). Today Taylor and City Capital oversee tens of millions in assets for clients ranging from entertainment icons and pro athletes to church members and private companies. He is a dynamic speaker and author of the best seller "Creating Success from the Inside Out." Learn more at CashFreeInvesting.com, IRACashFlow.com or Ephren.com.

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