Think Your 401(k) Is Flexible? 6 IRA Benefits Your 401(k) Doesn’t Have

When it comes to retirement plans, IRAs and 401(k)s provide many of the same benefits. But in certain situations, an IRA can outperform a 401(k). IRAs aren’t right for everyone, so you should become familiar with the advantages IRAs have over 401(k)s before you transfer funds or set up a new account. To help you do this, here are a few benefits you can reap from an IRA not available in a 401(k).

IRAs allow you to take QCDs and send them directly to the charity without including the distribution amount in your taxable income. This often results in a lower tax bill. You can also use your QCDs to offset your required minimum distribution.

A 401(k) distribution for higher education expenses will incur both a tax and a penalty. Taking an early IRA distribution to pay for higher education expenses for you or certain family members is penalty-free.

Opportunities for early distributions of 401(k)s are limited at best. Subject to the plan administrator’s rules as well as the tax code, 401(k)s require a compelling reason such as a hardship, to receive an early distribution. Conversely, IRA distributions are restriction free. You can take an IRA distribution at any time and do not need an approved reason like 401(k)s.

If you have multiple IRAS, you can aggregate the RMDs for your accounts and then take that amount out of one or any combination of your IRAs. Doing this with your 401(k)s results in steep penalties.

You can opt-out of tax withholding from an IRA distribution but not with a 401(k) distribution. This is a great benefit for those who end up with little or no tax liability at the end of the year.

One of the best parts of having an IRA, instead of a 401k, is that you have the most flexibility in how your IRA assets are invested, whereas with a 401k, your investment options are limited to those provided by the 401k Administrator. With an IRA, you can move your entire retirement account into a self-directed IRA account and then invest the money anywhere you want. Yes, it’s true! You get to choose. And, we can help you set up a self-directed IRA and invest your retirement account where you want.

Deciding whether to maintain your retirement account as an IRA or a 401k is a critical decision, and requires that you understand the benefits and limitations of both.

Relying on generalized information found online is not enough to protect your best interests. If you are serious about ensuring you make the best legal and financial decisions throughout your lifetime, meet with us as your Personal Family Lawyer® and to connect with one of the financial advisors we work with on a regular basis.

Once your financial planning is in place, schedule time with us for a Family Wealth Planning Session that will help you protect and preserve your wealth for future generations. Before the session, we’ll send you a Personal Planning Inventory and Assessment™ to complete that will start giving you a sense that your financial and legal planning are going to finally be in order.

This article is a service of family trust lawyer Stuart Williams, and Family Wills & Trusts, PLC. We don’t just draft documents, we ensure you make informed and empowered decisions about life and death, for yourself and the people you love. That's why we offer a Family Wealth Planning Session™ during which you will get more financially organized than you’ve ever been before, and make all the best choices for the people you love. Begin by calling our office today to schedule a Family Wealth Planning Session and mention this article to find out how to get this $750 session at no charge.