Are you aware that you can transfer the funds in your 401K or IRA to another investment vehicle via a number of RIAs (Registered Investment Advisors) the likes of Betterment LLC and Charles Schwab? If you are not, or you would like to find out more about using your retirement savings to the best advantages, read on.

Whether you are thinking about Rolling your 401K into an IRA or moving it to the UK, there are options available to you

If you are thinking about transferring or rolling-over your retirement account, you must first think carefully about your personal situation and your preferences. You need to consider:

  • What investment options there are?

  • What fees and expenses are there in relation to these options?

  • What services your chosen RIA offers

  • What are the withdrawal penalties?

  • What protections are offered in terms of your creditors or any legal rulings?

  • What are the minimum distributions?

  • How will your employer stock be treated?

To make the best-informed decisions about rolling-over a 401K or an IRA, it is advisable to seek professional advice.

The advantages of rolling-over your 401K to an IRA

To help you to make up your mind about whether or not to transfer your 401K(s) to an IRA, here are the advantages you can reap by doing so.

More investment choice

The investment options within 401Ks are severely restricted. If you switch your fund(s) over to an independent RIA, there is a much wider choice of stocks and share or ETFs to invest in. The more investment options you have, the better your chances of reaping long-term benefits on your retirement savings.

Choose Roth or non-Roth

Not all companies offer Roth options on 401Ks. In essence, the main difference between a non-Roth or a Roth, is that with a non-Roth 401K or IRA you can avoid taxation on deposits. With the Roth option, you can avoid being taxed when you withdraw funds in your retirement. After rolling over a 401K into an IRA, you can switch to a Roth option if you prefer. For more information on non-Roth vs Roth, please click here.

Mix and match – the choice is yours

You don’t have to roll-over all of your funds. If your employer allows it, and you prefer it, you can keep some of your funds in a 401K and transfer part to an IRA. You can then continue contributing to both, but there are restrictions. To find out more about the limits, please click here.

Early withdrawal options

If you roll-over your 401K and switch the funds into a Roth IRA you have options in terms of making early withdrawals. There are no options available if you rollover into a non-Roth IRA.

You could be in-line for a cash sweetener

There are lots of brokers in the world of finance who are keen to get your business and who will try to persuade you to use them for rolling your 401K or IRA. They may very well offer you a significant cash incentive. It can mean thousands of dollars.

Simpler to understand

The rules and regulations that relate to 401Ks are quite complicated as each employer sets their packages up in different ways, with different options. With RIAs, they are formalised by the IRS. Therefore, they all tend to work to the same rule book.

Advantages for inheritance

When you die, it is likely that the funds in your 401K will get paid to your beneficiaries in one lump sum. This action may have tax implications and can be easily calculated with a tax tool. However, if you roll your 401K over into an IRA, you will have more payout options to consider

Rolling-over costs you nothing

There is no specific roll-over fee.

What to do with your 401K if relocating to the UK

If you relocate to the UK, and you want to transfer the funds in your 401K or IRA, it is best to find a UK based wealth management company like Moneyfarm, and seek their advice. You should also talk to your US employer and either the IRS or an independent registered investment advisor.

The problem is that the 401K or IRA retirement saving vehicles are not pension schemes that are recognised by HMRC (Her Majesty’s Revenue and Customs). This means that you cannot transfer the funds into a UK pension scheme. However, once you have taken the cash out, it can then be transferred and invested through a UK independent financial advisor.

Take advantage of the weak Pound

Unfortunately, when you do withdraw the money you will have to pay tax to the IRS. There is some good news however and it is that there is a double taxation agreement between the USA and the UK, so, you won’t get taxed twice. The other good thing if you make the transfer now is that since the Brexit vote, Sterling is much weaker against the US dollar. In other words, it will buy you more pounds if you make the exchange in the near future.