Self-Directed IRA Corner: Should You Roll Over That 401(k) To An IRA?

If you’ve changed jobs or left the service of a company in the past, you may have an old 401(k) account with them. Many times, people just leave that money in their 401(k) accounts to accumulate there – neglected and forgotten. In many cases, it’s much more advantageous for investors to take positive action, take control of that money, and roll it over into a conventional traditional IRA, Roth IRA or Self-Directed IRA account.

Here’s why.

  • Self-directed investing. Unless you own the company, you don’t get to control the available investment options within the company 401(k) plan. Not many corporate 401(k) plans support true self-directed investing, and only a few even have a brokerage window. Most 401(k)s restrict you to a very limited menu of mutual funds, money market accounts and guaranteed investment contracts (GICs). By rolling over into a Self-Directed IRA with American IRA, LLC, you open your options to a nearly infinite array of investment possibilities. Instead of your old 401(k)s limited menu, a Self-Directed IRA allows you to go nearly anywhere:
  • Rental homes
  • Gold & precious metals
  • Apartment buildings
  • Commercial real estate
  • Private lending
  • Fix and flip real estate strategies
  • Unrated securities
  • Private equity
  • Private debt
  • Venture capital
  • Tax liens and investments
  • Land banking
  • Private banking
  • Foreign real estate

And nearly anything else.

  • Tax free growth in a Roth IRA. While your 401(k) grows tax deferred, there will still be a tax bill when you begin to take the money out in retirement. This may not be the best thing for you – particularly if you have a long way to go before retiring or expect to retire with a higher income than you have now. Rolling over to an IRA will allow you to convert to a Roth IRA and enjoy tax-free growth as long as you leave the money in the account (as long as it’s in there at least five years). You will pay income tax on any amounts you convert from a traditional IRA to a Roth, but after that, there’s no tax on dividends, interest or capital gains due in the Roth IRA. Rolling your 401(k) balance over to a traditional IRA or self directed IRA account with American IRA, LLC gives you the option of converting to a Roth, either now or in the future.

For bonus points, if you do roll over your 401(k) to an IRA, including a Self-Directed IRA, and convert to a Roth IRA from there, you escape required minimum distributions on that money. You won’t be required to begin making taxable distributions after you turn 70½. You can let your retirement assets in the Roth compound tax-free as long as you like.

  • Your heirs will have more payout options after your death. It is generally much better to inherit a Roth IRA, including a self-directed Roth IRA, than a 401(k) account, which may come with a requirement that your heirs empty the account within five years, without proper planning. That could push them into an unacceptably high tax bracket, and they forego years of tax-free compounding.
  • Lower fees. 401(k)s are notorious for charging outrageous fees to workers. This is because it’s the employer, not the employee, who gets to select the 401(k) vendor and fund choices. By rolling over into an IRA, you get to choose vendor – and the fee structure. American IRA has a decided advantage in this regard: We don’t charge a high percentage of assets under management. Instead, we charge a simple flat rate per transaction. For most buy and hold investors, you can save hundreds and even thousands of dollars in fees-just by converting to flat rate menu pricing system rather than the usual expense ratio you pay on mutual funds or AUM fees.

Note: Rolling a 401(k) into an IRA may not make sense for everyone in every circumstances. Before executing a transaction, call American IRA, LLC at 866-7500-IRA(472) to schedule a no obligation consultation. Or visit our website,, for more general information about self-directed investment strategies.