10 Reasons to Convert a 401k Into an IRA

If you are leaving a job, have left, or are planning on leaving a job, the next question is whether you should rollover your 401k into another similar account or convert it to an individual retirement account, more commonly referred to as an IRA. You may want to convert your 401k into an IRA for several reasons. In this article, you’ll discover reasons to convert a 401k into an IRA.

A Wide Range of Investment Options

The main advantage of converting your 401k into an IRA and cashing it out is the wide variety of investment options. For example, suppose you don’t like the bond funds available in your 401k plan, or you want to invest in stocks not offered by your current 401(k) plan, real estate, gold and silver etc. In that case, you’ll be able to do so through a self-directed individual retirement account such as a Roth IRA (if your income allows). IRA accounts often allow participants to invest in a wide range of investments not typically offered through workplace retirement plans.

Low Fees

If fees are charged every time you take money from your 401k plan before reaching age fifty-nine and a half years, then those same fees may apply when withdrawing from a traditional IRA after converting it from a 40lk account. However, there is no fee for withdrawal with a Roth IRA. And if you roll over your 401k into a Roth IRA, there are no fees for withdrawal from the plan at any time.

Take Control of Your Retirement Assets

Once you have converted your 401k account to an individual retirement account, such as a Roth IRA, you’ll assume complete control of those assets and will be able to keep them in an account with low fees for the rest of your life.

The Ability to Stretch Withdrawals

If you intend to retire at sixty-five years old, but don’t want to withdraw money from your IRA until age seventy or eighty, then converting your 401k to a Roth IRA will give you more flexibility when taking withdrawals during retirement; if you do not need the funds before reaching age fifty-nine and a half years, you can leave them there and let them continue compounding over time.

Avoiding Taxes on Your Retirement Assets

If you plan to retire early, but want to leave money for your children or grandchildren in your IRA account, then converting your 401k into a Roth IRA can give them tax-free withdrawals when they reach the age of fifty-nine and half years. Also, since Roth IRAs don’t have mandatory withdrawal requirements during retirement, you’ll be able to hold off on withdrawing funds until the time that you choose.

Accessing Funds When On Strike

If you are planning on quitting your job soon because you are going on strike with a labor union, leaving for work elsewhere, or retiring from employment altogether, then cashing out or rolling over your 401(k) account won’t require any penalties because it’s not considered an early withdrawal; there are no penalties for early withdrawal if your retirement plan falls under IRC section 401k. This makes it easy to leave employment when you’re on strike with a labor union or unhappy with your employer but still have funds locked up in your 401(k) account.

Leaving Funds for Your Heirs

If you want to keep your IRA account available after death so that it can be passed on to heirs instead of using the estate-tax process, then converting 401k accounts into Roth IRAs is one of the few tax-free methods available. But this also requires having at least some money saved outside of your IRA plan because you may need some immediate dollars while waiting for the rollover to complete. While most people don’t like to think about dying, you should at least make sure that your IRA passes on to your spouse or other family members.

Protecting Your 401k During Bankruptcy

Suppose you want to protect your 401k plan during bankruptcy proceedings. In that case, converting the account into an IRA will likely be more successful than trying to keep it as a retirement account with minimal risk. While it may not happen too often, many people use their retirement funds as collateral for loans or even file for bankruptcy protection over consumer debts – which means they could lose all of their retirement funds if those accounts are considered part of their assets during court proceedings. You’ll successfully avoid having any claims against your IRA as part of your bankruptcy proceedings by converting the account into an individual retirement arrangement beforehand.

Maximizing Your Retirement Savings

Suppose you’re young, healthy, and want to put off taking distributions until age seventy and a half years old. In that case, converting your 401(k) account into an IRA gives you the ability to maximize your savings and let the money continue growing into a larger retirement account. Those who go this route can also take distributions from their IRA at any time and take early distributions without penalties after they reach age fifty-nine and a half years old – although there are still some early withdrawal penalties for those under age fifty-nine and a half.

Access to Loans

If you want access to loans for major purchases such as homes, cars, or education; or need funds during emergencies like job loss or medical bills, then you might consider converting your 401k plan into an IRA because you will be able to borrow up to $50,000 if needed (and repay that loan within five years). Not only can you borrow from your IRA, but you can also take early distributions without paying fees – so if you need to pay medical bills or credit card debts, early withdrawals are less problematic.


You may have several reasons for converting your 401k into an IRA, such as better investment choices or simply not wanting to pay fees and penalties. Just make sure that you consider the pros and cons before doing so because it’s a big decision compared to opening up a Roth IRA instead of cashing out your retirement plan, especially if you’re young and haven’t started saving yet.