Downsides of a 401k Rollover to an IRA

When performing a 401k rollover, IRA accounts are one of the most common destinations for the funds. While many people do rollover their 401ks into IRAs, that does not necessarily mean it is the best decision. Here are a few downsides of rolling your 401k into an IRA.

Company Stock

When you leave company stock in your 401k, you can take advantage of special tax treatment. If you roll the funds into an IRA, you will lose this tax treatment, and the government will tax this at your regular income tax rate.


Another disadvantage is that you lose your ability to borrow money from your retirement. With 401k plans, people can take loans against the funds and then repay the money at a later date. With an IRA, this is not possible, as they do not allow loans.

Taking Withdrawals

Another key difference between these two types of accounts is how soon you can start taking withdrawals. You cannot start taking penalty-free withdrawals from an IRA until you reach the age of 59 1/2. With a 401k account, you could start taking withdrawals on a penalty-free basis as soon as you reach the age of 55. This provides you with quicker access to your funds that would be lost if you rolled over into an IRA.

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