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Gainesville Florida Estate Planning & Elder Law Blog

Wednesday, October 31, 2018

Retirees Switching From 401(k)s to IRAs for Their Nest Egg

For the longest time, the source most people have used for their retirement next egg has been the 401(k), but that trend seems to be changing.

With the driving force behind this change being older Americans, it is becoming more and more common for IRAs to be used for this purpose.

In the five years ended in 2017, 96 percent of the $2 trillion in IRA contributions came from rollovers, according to a recent study. And between the end of last year and 2022, the money invested in IRAs is expected to grow at a significantly quicker pace than 401(k)s. IRA assets are expected to jump 37 percent to $12.6 trillion. That compares to an estimated 20 percent rise in 401(k) assets to $6.6 trillion.

The apparent reason for the change is the need by seniors to access their money more easily to pay living expenses and to maintain a steady income stream after they stop receiving a regular paycheck.

The advice of financial advisors has played a key role in this change. That advice tends to be that when you leave a job, you should take your money with you, rather than leaving it in your former employer’s 401(k) plan.

In 2017, as an example, nearly $200 billion in assets was rolled over from 401(k) plans to the IRAs of people between the ages of 60 and 69.

The primary reason for this migration is that it is much easier to withdraw money from your IRA than it is from a 401(k). There are also more investment options with an IRA.

If you are getting close to or have already passed retirement age, you probably want to look at your options when it comes to IRAs vs. 401(k)s. If you do, it is extremely important that you seek the advice of a financial advisor that you know and trust.



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