401(k) Rollover: Why not Traditional IRA?

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While 401(k) plans have some good sides to them, they are also very disadvantaged compared to some types of IRA accounts. It is recommended that someone who wants to rollover a 401(k) plan to IRA change to a self-directed IRA account. There are many upsides to this approach, and this article will explain why it is better to rollover the 401(k) into a self-directed IRA.

One aspect of this worth mentioning here is the ability to have a self-directed 401(k). Though this sounds similar to a self-directed IRA it really isn't. For one thing, although investment options are more varied with a self-directed 401(k) there are still many limits to what can be done. Some employer plans impose limits on the portion of the account which can go into the self-directed part of the plan.

For example, an employer might only allow a quarter of an account to go into the self-directed plan while the rest stays in the standards 401(k). This limits the account holder's control over his or her own money, and makes things more complicated than they need to be. Also, 401(k) plans, regardless of type, are tied to the employer's corporation. An employer might choose to switch to a new plan, or a new company, or make other changes unfavorable to employees holding 401(k) plans. Converting to an IRA is preferable because all the money goes into the new plan, and the account owner can choose who is to be the account counselor in order to suit individual needs.

One of the biggest reasons to convert the 401(k) plan to an IRA in the first place is to allow for greater diversity in investment choices. If converting to a traditional IRA, a big part of this benefit is lost, as traditional IRA types also have considerable limitations on what assets can and cannot be invested into it. It would be in the best interests of the person converting to go the full way and choose a plan which allows for the widest array of choices.

Self-directed IRA's are also better in that they allow full control of the money by the account holder. Any IRA is better than a 401(k) plan in this regard to some degree, as 401(k) plans are fundamentally limited by their structure of being linked with a certain employer and company. This means the company sets things up in order to achieve the highest benefits possible for itself, and the best interests of the account holder, unfortunately, are not always kept at the top of the priority list. However, a self-directed IRA is also the best way to go .

This form of IRA has the account managed by a custodian who helps out with everything but does not control what happens in the account. When the account holder isn't limited by any third parties, highest-performing investments can be chosen for the benefit of whoever has all the money in the account. A self-directed IRA is simply the best choice for rolling over a 401(k).

Ephren W. Taylor II first revealed his extraordinary knack for making money at age 12 and he hasn't slowed down since. He was a self-made millionaire while still in his teens. In his twenties he became the youngest African-American CEO of any publicly traded company ever, City Capital Corporation (CTCC). Today Taylor and City Capital oversee tens of millions in assets for clients ranging from entertainment icons and pro athletes to church members and private companies. He is a dynamic speaker and author of the best seller "Creating Success from the Inside Out." Learn more at CashFreeInvesting.com, IRACashFlow.com or Ephren.com.

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