Rollovers

The Benefits of Rolling Over Your 401(k) or 403(b) into an IRA Rolling over an old employer-sponsored retirement plan into an IRA can be highly beneficial. Here are three reasons to consider rolling over a 401(k) or 403(b). It might be easy to forget about 401(k)s from past employers, but you'll pay for it in the long run. Here are some reasons to consider rolling them over into one IRA. When you’ve switched jobs multiple times in your career, you may have participated in several employer-sponsored retirement plans, such as 401(k) and 403(b) plans. 401(k)s are generally provided by many for-profit employers, while 403(b) plans are most often used by the nonprofit sector. What many people don’t know is that when you leave a job, it’s important to consider carefully what you do next with your employer-sponsored plan. While working, one of the best ways to save for retirement is to fund an employer-offered plan because they often have important tax advantages and higher contribution limits than individual retirement accounts. But after you leave a job, there are several important reasons to consider rolling over funds from your 401(k) or 403(b). In this article, we’ll run through some of those reasons. 1. Accessing more investment options One of the main benefits of an IRA is that there are often more investment options than a 401(k) or 403(b) plan. If you contribute to your employer’s retirement plan, you might end up with only a few options chosen by the plan administrator. You might have to be heavily invested in company stock or you might have a limited number of high cost mutual funds to choose from. We don’t bring this up as a way of lambasting your administrator—they're simply trying to pick the options they believe should be made available to all employees—but many people don’t realize just how limiting these options can be. If you have an account with a previous employer, you may not have any worthwhile reasons to stay with the limited investment choices within the plan, and that’s one reason to consider rolling into an IRA. An IRA held at a brokerage or investment advisor, like Betterment, enables you to access a much broader universe of funds. For some investors, having the ability to pick and choose any variety of funds is important to them. At Betterment, our investment advice for an IRA (and any account type) is based on research-backed portfolio construction that pursues a highest expected return for the risk you’re willing to take on, while maintaining global diversification and low costs. 2. Lowering Your Investment Fees The fees with an IRA can sometimes be lower than what is charged by your plan administrator. In many 401(k) and 403(b) plans, the expense ratios (i.e. fees) on mutual funds and ETFs can be much higher than those available within IRAs. Also, depending on your plan, by keeping funds within your 401(k) plan after leaving your employer, you may be subject to management fees. Moving to an IRA may involve taking on fees for investment advice and management or trading costs, but all-in, when you do the cost analysis, an IRA can often be less expensive than a 401(k) plan. When evaluating fees, do keep in mind, that if your current employer-sponsored plan is among the nation’s top plans, it could also be worth your while to hold your funds there. 3. Managing Your Portfolio in One Place For many investors, part of the value of rolling over to an IRA comes from the peace of mind of having all of their past retirement contributions (and other investments) in one place, rather than spread out across multiple old employer-sponsored plans and investment providers. When you understand the full picture of your retirement savings, you can often make better estimates of what your future retirement budget could look like. Furthermore, depending on your situation, if you move your retirement assets to one provider, you can also improve the tax-efficiency of your taxable investments using asset location. You can learn more about how Betterment’s Tax Coordination of IRAs and taxable accounts helps increase potential after-tax returns here. Roll over correctly, and you probably won’t need to worry about taxes. Even with the above benefits of rolling over, many people hesitate on the fear of causing themselves extra taxes. The good news is that when rolling over a 401(k)/403(b) or any other employer sponsored plan, we use the direct rollover method to prevent any withholding or negative tax consequences. There are two important things to remember in regards to taxes when rolling over: Be sure to designate a withdrawal from your current provider as a rollover. A rollover from a traditional 401(k) or 403(b) should enter a traditional IRA. A rollover from a Roth 401(k) or 403(b), should end up in a Roth IRA. If you withdraw from a traditional 401(k) or 403(b) as a non-rollover before age 59 ½, you will face a 10% penalty for an early withdrawal. If you rollover from a traditional plan into a Roth IRA, you will have to pay income taxes on the money. Both of these situations are unnecessary for most investors, except in certain circumstances. The key is that when deciding whether to rollover a retirement account, you should carefully consider your personal situation and preferences. In this article, we’ve provided three general reasons to consider rolling over to an IRA, but as an individual investor, your situation is unique. This article is not an individualized recommendation that you take any particular action—just useful information for you to think about. As suggested above, there are a variety of factors to consider when evaluating the choice to make a rollover. In addition to the points above, you might want to consider: The investment options you have access to The current and future fees and expenses you face The investment services you need (and could gain or lose) Any penalties you could face when withdrawing your money Protections from creditors and legal judgments Required minimum distributions associated with certain accounts The treatment of employer stock within your employer plan The world of retirement planning is complicated, no doubt about that. So, before deciding to roll over an employer-sponsored plan, you should research the details of your current account and consult tax professionals and other advisors with any questions about your specific personal situation.

How To Roll Over A 401(k)—We Help Make It Easy Have 401(k)s from old jobs lying around? Betterment makes rolling them over into a low-cost IRA account simple and easy. Let’s say you’ve got a 401(k) from an old employer and you’re interested in rolling it over to an IRA. You can roll over your old 401(k) to any IRA provider, so why choose Betterment? At Betterment, not only do we make the rollover process simple and easy, we also make sure that your funds are placed into a globally diversified investment portfolio that fits your personalized retirement needs—all at a low cost. You have a 401(k) from an old employer—now what? Once you no longer work for an employer, you have a few different options when it comes to what you can do with your old 401(k). The possibilities include: Keeping the 401(k) where it is and doing nothing. Rolling over the previous 401(k) to your current or future employer’s 401(k). Rolling over the 401(k) to an IRA. Taking a cash distribution to your personal checking account. It’s important to consider all of the different options you have. Although there are times where it can make sense to keep your 401(k) where it is, or move it to your new 401(k) plan, doing so may not be in your best interest due to high fees, confusing investment selections, and a lack of holistic financial planning options. Taking a cash distribution to yourself can be especially harmful because it’s a taxable event and you may be hit with early distribution fees by the IRS. Note that rolling a 401(k) into either an IRA or another 401(k) is not considered to be a taxable event. At Betterment, it’s different. Many larger, more traditional financial institutions and 401(k) providers require lots of paperwork, long waits, and misleading and clunky processes. Additionally, when you actually complete the rollover to an IRA, they likely will charge you lots of hidden fees, charge high fees, or put you in investments that don’t align with your actual retirement goals. Other 401(k) and IRA Providers May Have... Betterment Offers... Slow, confusing, misleading processes. Many larger, older, legacy 401(k) providers allow you to roll over to IRAs within their system. To do so may include lots of paperwork that’s typically confusing. It can take weeks to actually open up the IRA and complete the rollover. Simple, efficient, transparent, automated, individualized processes. In just a few clicks, you can open up a Betterment IRA with the appropriate investment strategy, and instantly receive a personalized set of rollover instructions via email. There is zero paperwork required from Betterment. Higher fees, extra fees, poor disclosure. Providers will often find ways to charge you for everything. They have fee schedules, which include fees to open accounts, close accounts, change your allocation, make trades, take withdrawals, etc. The list goes on. The investments themselves may carry high fees on top of the other fees you’re already paying. These providers typically love to bury their hidden fee information in lengthy disclosure documents. Low cost with transparency. At Betterment we have one fee—our management fee—which covers everything and is one of the lowest in the industry. We don’t have a fee schedule or hidden fees. We don’t charge you to open or close accounts, make withdrawals, change your allocation, etc. The low-cost investments (ETFs) we invest in are among the lowest in cost of funds available for investors. Little or no guidance. Many companies will give you paperwork to fill out to move your 401(k) into an IRA. Once it’s moved to the IRA, the guidance—if there ever was any—ends. Either you will have a self-directed IRA where you do everything yourself, or, you can be put in a managed account where they will charge you lots of fees with little to no transparency. Many times there is no holistic planning around the different financial goals you have. Advice and hands-on customer service. When you set up a Betterment IRA, the corresponding investment strategy aligns with your specific retirement plan. It can even work in coordination with the rest of your retirement funds. Not only does the website itself provide you with personalized financial advice, we also have a team of Certified Financial Planners™ and an easy-to-reach customer support team. We automate the rollover process as much as possible. With just a few clicks inside of your Betterment account, we will automatically open up either a Traditional IRA or Roth IRA, depending on what type of 401(k) you are rolling over. We do not need any paperwork from you. Then, we’ll email you a full set of personalized instructions for how to proceed with your rollover. The instructions will lay out the exact next steps to take and the information you need to complete your rollover. This includes your unique Betterment IRA account number, how your provider should make your rollover check payable, and where they can mail your rollover check. Some providers may require you to either fill out their rollover paperwork, or even ask you to give them a call to complete a rollover. If so, there’s no way around that. Using the personalized email that Betterment sends you, you can give your 401(k) provider a call and you’ll have all of the information they’ll ask you for right at your fingertips. Lastly, we will notify you via email as soon as your rollover funds are invested into your Betterment IRA. You can roll over more than just a 401(k). It’s important to note that this process does not just apply to 401(k)s. It applies to any employer-sponsored plan that you hold from past employment. This includes pensions, 401(a)s, 457(b)s, profit sharing plans, stock plans, and Thrift Savings Plans (TSPs). Ready to Roll? We designed the rollover process to be as smooth as possible. If you have any questions before or during your rollover process, we have a team of customer experience associates available via phone, email or mobile messaging to sort out any questions or concerns you may have. When deciding whether to roll over a 401(k) account or other retirement accounts, you should carefully consider your personal situation and preferences. Relevant factors may include that: (i) 401(k) accounts may offer greater protection from creditors than IRAs. (ii) In some cases, the ability to take penalty-free distributions at an earlier age or to defer minimum required distributions. (iii) Some 401(k) accounts may also allow for loans or distributions in a broader set of circumstances than IRAs. (iv) Some 401(k) plans may also offer specific educational and advisory services to participants that are unavailable to some IRAs. (v) Some 401(k) plans may have lower fees and expenses than some IRAs. (vi) Some IRAs may offer a broader range of investment options that some 401(k) plans. (vii) Special tax rules may apply to the rollover of employer securities. You should research the details of your 401(k) and speak to a tax and other advisors about whether the features of your 401(k) are relevant to your personal situation. The rollover process is currently automated for rollovers from select providers. If you have a provider that is not part of our automated process, you will receive an email with a checklist for completing your rollover to Betterment. In processing you rollover request, Betterment will be acting at your direction.

Your Guide to Betterment Rollovers Moving your money to a new financial institution can be tedious and complicated. At Betterment, our goal is to make it easy and automatic. Here, we break down each rollover method and explain which might be right for you. We’ve talked before about why we believe Betterment is the best place to put your money if you’re investing for the long term: our globally diversified portfolio, low fees, personalized advice, and tax-efficient services that can increase your after-tax returns by an estimated 15% over 30 years. Read about all the benefits. Once you’ve made the decision to move your money to Betterment, there are a few different ways you can do so. Based on your account type and provider, we will automatically select an appropriate transfer method for you. If you’re ready to get started now, click the “Transfer” button from the Summary tab of your account. From the Transfer tab, click “Roll over an IRA or 401(k)” to begin moving your money to Betterment. Or, if you'd first like to learn more about each method, read our guide below. A Guide to Moving Your Money to Betterment: 2 Transfer Methods Direct IRA Transfer or Direct 401(k) Rollover via Check Moving money through ACATS is usually ideal because it’s a more efficient process, but in some cases, it’s not an option. To start, both firms must support ACATS transfers. Second, you must move funds between matching account types (i.e., IRA to IRA). Therefore, moving retirement money from an employer-sponsored account, such as a 401(k) or 403(b), into an IRA is generally not an option via ACATS. It’s also worth noting that if you own a mutual fund IRA account and not a brokerage IRA account, you cannot use the ACATS system. There may be other reasons why ACATS is not available for your specific account. In that case, we will automatically provide you everything you need to do a direct transfer or rollover via check. While there are a few more steps required, this method maintains many of the advantages that are tied to direct transfers. Not only can you complete as many direct transfers or rollovers via check as you would like in any given year, it’s considered to be a direct exchange between providers, meaning there are no tax penalties involved and generally no withholding. Read about how to roll over a 401(k) to Betterment. Indirect Rollover As a last resort, completing an indirect rollover is another way to move retirement funds between institutions. However, the many IRS rules and restrictions attached typically make it a last-resort choice. Not only are you limited to one indirect rollover per 365 days, but you must also distribute all or part of your account, take possession of the funds, and then redeposit the cash proceeds into a new IRA within 60 days. What’s more, it’s potentially reportable on your federal tax return. In addition, generally, the original firm withholds on the distribution, meaning you must make up the difference from your own funds, or else it may count as a taxable distribution. This can leave a lot of room for error, not to mention it requires a lot of manual work for you. If you have any questions about moving your retirement money to Betterment, we have experts on hand to assist. Ready to make the move to Betterment? Get started today. Betterment is not a tax advisor, nor should any information contained in this article be considered tax advice. Please consult a tax professional. When deciding whether to roll over a 401(k) account or another retirement account, you should carefully consider your personal situation and preferences. Relevant factors may include that: (i) 401(k) accounts may offer greater protection from creditors than IRAs. (ii) In some cases, the ability to take penalty-free distributions at an earlier age or to defer minimum required distributions. (iii) Some 401(k) accounts may also allow for loans or distributions in a broader set of circumstances than IRAs. (iv) Some 401(k) plans may also offer specific educational and advisory services to participants that are unavailable to some IRAs. (v) Some 401(k) plans may have lower fees and expenses than some IRAs. (vi) Some IRAs may offer a broader range of investment options that some 401(k) plans. (vii) Special tax rules may apply to the rollover of employer securities. You should research the details of your 401(k) and speak to a tax and other advisors about whether the features of your 401(k) are relevant to your personal situation. The rollover process is currently automated for rollovers from select providers. If you have a provider that is not part of our automated process, you will receive an email with a checklist for completing your rollover to Betterment. In processing you rollover request, Betterment will be acting at your direction.