You have the most control and the most choice if you own an IRA. IRAs typically offer a much wider array of investment options than 401(k)s (unless you work for a company with a very high-quality plan such as a Fortune 500 firm).
Some 401(k) plans only have a half dozen funds to choose from, and some companies strongly encourage participants to invest heavily in the company’s stock. Many 401(k) plans are also funded with variable annuity contracts; these contracts provide a layer of insurance protection for the assets in the plan but can cost participants as much as 3.9% per year.
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By contrast, IRA fees tend to be lower, depending on which custodian and which investments you choose. And with a small handful of exceptions, IRAs allow virtually any asset, including:Where are you now financially compared to where you think you’ll be when you tap into the funds? Answering this question may help you decide which rollover to use. If you’re in a high tax bracket now and expect to need the funds before five years, a Roth IRA may not make sense. You’ll pay a high tax bill upfront and then lose the anticipated benefit from tax-free growth that won’t materialize.
If you’re in a modest tax bracket now but expect to be in a higher one in the future, the tax cost now may be small compared with the tax savings down the road. That is, assuming you can afford to pay taxes on the rollover now.
