6 Reasons Why You May Need an IRA Along With Your 401(k)

Here are our top 6 reasons why you may want to consider opening an IRASelect IRA account as a companion to your 401(k) savings account.

May 09, 2018

There may be a number of benefits to taking advantage of an IRA account, even if you are participating in your employer’s 401(k) or other type of retirement plan. Following are our top six reasons why you may want to consider opening an IRASelect IRA account as a companion to your 401(k) savings account.

1. You want to save more but need to have access to your savings in the case of an emergency.

Do you wish to save more but are afraid to lose access to that savings should an emergency arise? As long as you are maximizing the benefits of your employer-sponsored plan (at the least, you should be receiving the full match), you may want to consider a Roth IRA.

With a Roth IRA, you may contribute up to the annual limit. You should note that while there is no upfront tax benefit to saving in a Roth IRA (contributions are not deductible), there is also no penalty for withdrawing those contributions early. Any earnings on the account can be left in the account to avoid current income taxes and any potential penalties.

If you think about it, a Roth IRA could serve a similar purpose as the once-popular Christmas Club Savings Account. Save a little bit all year long and have funds available for the holiday season. The comparison is offered to help you understand how a Roth IRA could be used to save, while enabling you to be prepared for a rainy day, not necessarily to have an excuse to squander your future financial security on frivolous spending.

To learn more, visit our Roth IRAs page.

2. You want to have more tax diversification options in retirement.

If your employer’s plan does not offer you the opportunity to save into a designated Roth account, you may wish to consider a Roth IRA for the tax diversification benefits. All withdrawals from your employer-sponsored plan (unless you have some tax-basis, which is rare), will be taxable to you in the year withdrawn. Qualified Roth Distributions are withdrawn income tax-free (for federal income tax purposes, and most states—state laws vary).

By having pools of savings with different tax treatment from which to draw from, you have more options for creating a withdrawal strategy that minimizes the impact of taxes. Another attractive feature of the Roth IRA is not being subject to the Required Minimum Distribution Rules.

3. You wish to simplify managing your accumulated retirement savings.

Let’s face it, most of us have worked for a few different employers over the years. With each job change, you may have left behind a retirement account or rolled it over into an IRA. An IRASelect account could be just what you need to consolidate those accounts.

It can be difficult enough determining the appropriate asset allocation strategy for one account. Trying to do so amongst different accounts with different investment offerings, making sure to consider any overlap among funds/accounts, can be downright impossible.

4. A rollover into your current employer’s plan is not an option.

Perhaps your new employer’s plan will not accept the incoming rollover or you do not wish to subject your other accounts to some more stringent rules of the new plan. If that’s the case, let IRASelect help you consolidate your accounts onto one platform where you’ll have single-sign-on access to your accounts and will receive comparable account statements that are easy to read and understand. The same Retirement Plan Specialists will be able to help you with either of your accounts. How is that for one-stop shopping?

5. You have inherited qualified retirement assets from somebody other than a spouse.

If you’ve recently learned that you are a named beneficiary on an IRA or employer-sponsored retirement plan, performing a rollover into an inherited IRA is a great way to avoid current taxation on the account. While you will be required to begin taking annual “Required Minimum Distributions” from the account, you can avoid a large tax hit by spreading the receipt of the balance over a number of years.

6. We have made it so easy!

We have invested the time and resources to make the account opening process as easy as possible. Give us a call (1-866-401-5272, ext. 3120) and ask for a “Rollover Specialist,” and we’ll even help you with the rollovers from your other accounts.