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Is it best to roll over a 401k into an IRA before taking the money out?

401(k), IRAs
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February 2016

Often, no. You may take withdrawals from a 401k at an earlier age. Your 401k may have better creditor protection under federal law.

On the other hand, rolling it into an IRA may give you more investment options (not necessarily better ones - some 401k plans are excellent). Also, if it’s rolled into an IRA, and you’re over 70-1/2, you may aggregate RMDs across multiple IRA accounts. You may not do that with 401k plans. And finally, just on a general administrative level, it’s often easier to deal with an IRA custodian rather than a 401k custodian because the 401k is tied specifically to the former employer and the former employer’s plan.

That said, we do often recommend folks roll former employer 401k plans into current employer 401k plans rather than IRAs - while one is still working - if the new plan is excellent, with low costs, good investment options and administrators we like. But that’s more of an issue regarding keeping the 401k investments intact on an ongoing basis, not regarding “taking any money out” as you’d asked. It would help if you could describe more about what you mean by “taking money out” — are you retired? How old are you? What are your investing goals? What other investments and investment accounts to you have?

March 2016
March 2016