In order to save for retirement, everyone realizes that they will need to invest their money in some type of fund. One of the most common types of funds is an individual retirement account, which is commonly referred to as an IRA. With an IRA, people are able to deduct a portion of their taxable income to invest in a variety of options. Many people use these funds to invest in stocks, mutual funds, bonds and self-directed IRA real estate.
The nice thing about IRA accounts is that they are tax deferred, so whatever people invest will not be taxed until they can withdraw funds, which is normally at 59 1/2 years of age. The real advantage is that the money invested shaves off a portion of their gross income, so if they earned $80,000, but invested $10,000 into an IRA, they would be taxed based on earning $70,000. This could open up their budget a little more, and they will be earning interest on the extra amount, which is like an invisible pay raise.
However, an IRA has some disadvantages, when compared to a 401k plan. The first thing is that the investors have to make all of their investment decisions on their own, which can be stressful to some people. If they do not want to make decisions on their own, they will need to hire a financial adviser. Financial advisers are great, but they charge a fee, which cuts into how much the person can earn from their investment. If people were investing their own money, they would ideally receive the full return.
This makes a some of people consider an IRA rollover to 401k. With a 401k, the employer will, typically, sponsor the account. This means that they will have the fund professionally managed, so the employee will not have to deal with the extra stress. In addition, many employers match the employee’s contributions to a certain percentage. However, what can self-employed people, who want a 401k plan do? The simple answer is to start a solo 401k, which will allow them to invest money through their own business.
Whether people have a self-directed IRA LLC or a regular IRA, they should consider rolling their funds over to a 401k. The process is relatively easy, and even if they have to pay a small penalty, the account is better in that people do not have the stress of managing their own investments.