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Should You Roll Your 401(K) Into an IRA?


Why It Matters:

  • For many people, an IRA can make more sense than a 401(k).
  • When you’re leaving a job, it’s a great time to consider whether you should roll your existing 401(k) into an IRA.
  • IRAs have several benefits over 401(k)s — primarily, their flexibility.

Our workforce has become highly transient: Baby Boomers born between 1957 and 1964 held an average of 12.4 jobs from ages 18 to 54, according to a study by the Bureau of Labor Statistics.1 When you leave a job with a 401(k), it’s tempting to simply roll those retirement assets into the 401(k) plan at your next employer. But there’s also another option: roll that money into an IRA.

Here are some of the reasons an IRA might make more sense than another 401(k):

You have more than one retirement account. Many people in today’s job market end up trailing a series of 401(k) plans behind them. Consolidating accounts allows you to manage your retirement assets in one place, which allows for easier recordkeeping and a more consistent approach to investing. Rather than constantly checking and rebalancing a wide range of investing options, locating them in a single IRA can make it easier to choose (or change) the investments you want.

Your plan doesn’t offer enough investment options. Many 401(k) plans have a limited selection of stock funds. They often have an even more limited number of bond funds, which can be critical as you near retirement and seek safer havens for your money. IRA investors typically have more leeway to choose where to put their assets. More adventurous investors can invest in exchange-traded funds, options, and real estate through an IRA.

Your 401(k) does not offer a retirement income program. Whereas 401(k) plans are limited to the options offered by the investment plan, IRAs are more flexible. Options with an IRA include annuities that can provide lifetime income that’s guaranteed, based on the claims-paying ability of the issuing insurance company. If that’s the kind of security you’re looking for in retirement, an IRA can make sense.

Your 401(k) comes with fees. Many workers don’t realize that there are fees attached to having a 401(k). In fact, a TD Ameritrade survey found that just 27% of investors knew how much they paid in 401(k) fees, and 37% didn't realize they paid fees at all. 2 These fees fall into two basic categories: those charged by the plan provider, and those charged by the mutual funds or ETFs in the account. Over time these fees can impact your returns. Some 95% of 401(k) plan participants pay fees.2

Your plan has limited beneficiary planning options. IRAs can offer flexibility in how the assets in your account are distributed to beneficiaries. However, the Internal Revenue Service keeps changing rules for inherited IRAs, so beneficiaries will likely need to consult a tax professional who can advise on the best course of action for their individual needs.

You may need or want to access your retirement assets prior to age 59 1/2. The IRS usually imposes a 10% early withdrawal tax from most retirement plans unless an exception applies. Fortunately, one of those exceptions is an IRA.3 And unlike a 401(k), you can tap into an IRA without penalty for things like health insurance premiums while unemployed, qualified higher education expenses, and first-time home purchases.

You inherited an IRA. If you inherit a traditional IRA from your spouse, you can roll the funds into your own IRA, or you can designate yourself as the account owner and have it become your IRA. Alternatively, you can declare yourself the beneficiary. If you inherit a traditional IRA from someone other than a spouse, you cannot roll it over; you have to withdraw the assets within a specified period of time.

You inherit company stock. It may be tempting to move stock that you’ve been granted at a job to an IRA when you leave that company. And some institutions require the funds go to your IRA as cash instead of as shares. But be careful. When you do take that money, even in retirement, you could be taxed not only on the distribution but on any capital gains as well.

You don’t have access to another 401(k). Maybe your new job doesn’t offer it, or maybe you’re sitting out of the workforce for a while. Don’t fret: An IRA can usually fill the bill.

For more information on when IRA rollovers make sense, check out this handy guide from Transamerica’s Advanced Markets Group.

Leaving a job often gives you an opportunity to make these types of changes, which means it’s also a good time to reassess how well you’ve been progressing toward your retirement goals. Before you make any moves with your 401(k), call your financial professional to help determine the option that’s best for you.

Things to Consider:

  • It may not be a good idea to trail around several 401(k) plans from previous jobs.
  • If you’re switching jobs, consider whether an IRA suits you better than another 401(k).
  • There can be more flexibility — and more you'll have to manage — with an IRA. 


“Number of Jobs, Labor Market Experience, Marital Status, and Health: Results from a National Longitudinal Survey Summary,” Bureau of Labor Statistics, August 2021 
“The Hidden Fees in 401(k)s,” Investopedia, February 2021 
“Retirement Topics — Exceptions to Tax on Early Distributions,” IRS, September 2021


Transamerica Resources, Inc. is an Aegon company and is affiliated with various companies which include, but are not limited to, insurance companies and broker dealers. Transamerica Resources, Inc. does not offer insurance products or securities. The information provided is for educational purposes only and should not be construed as insurance, securities, ERISA, tax, investment, legal, medical or financial advice or guidance. Please consult your personal independent professionals for answers to your specific questions.