What is a 401(k) Rollover?

What is a 401(k) Rollover

Did you know that the typical American goes through five to eleven jobs in his or her lifetime? Imagine that, five to eleven jobs in one lifetime! In some countries, people start a job right after they graduate from college, and they never leave that job. They basically only have one or two jobs their whole lifetime. Now with America, most Americans would go through several jobs. We’re talking about career jobs. We’re not talking about that summer you spent at McDonald’s or Burger King. We’re talking about your real career. Most Americans go through five to eleven career jobs in their working life. This of course is due to the fact that Americans are very upwardly mobile. In the United States, almost unique among other countries in the world, if you were born poor, your chance of dying rich is quite good because of income mobility. In the same way, if you were born rich, your chance of dying poor is twenty percent or higher. Again, thanks to income mobility. The old saying of the rich gets richer, and the poor get poorer does not necessarily hold at least when it comes to the United States. That is the blessing of the US economy.

Given this reality, you really have to plan out your retirement plan, or else you may be caught flat footed by quick changes in the stock market or in the investment landscape. If you want to ensure that you retire in style, and you really grow your retirement funds, you might need to look into 401(k) rollover. Your 401(k) is your private retirement plan. Every employer of a certain size has a 401(k) program. The 401(k) works this way: every paycheck, you can devote a certain chunk of your pay to go to your 401(k) and your employer will match that amount up to a certain limit. It’s a good idea to invest in a 401(k) because it’s a form of forced savings. You never see the money that way, out of sight, out of mind. You don’t miss the money. And if you don’t miss the money, you don’t spend it, very simple, very straight forward. However, since most Americans do have between five to eleven jobs during their lifetime, you will find yourself moving from one job to another and with each job, you’re starting a new 401(k). It’s very important then to use 401(k) rollover plan so you can then pool on these private retirement funds into one fund. The best way to do this of course is to use a self-directed IRA. Once you have all these rolled over funds, you can then use your self-directed IRA to grow the money with time by either investing in stocks, precious metals bonds, US securities and other investment vehicles. You can even reinvest in real estate using a self-directed IRA. Keep the following discussion in mind so you can better manage your 401(k) rollover.

The Self-directed IRA

One of the most common ways to do a 401(k) rollover to gold is to rollover your 401(k) from previous employers to a self-directed IRA account. The IRA of course stands for individual retirement account. This retirement account is not for a group of people or like a large mutual fund of partners in the account. NO. This is just for you. It’s an individual retirement account. The great thing about self-directed IRA when it comes to your 401(k) rollover fund is that you have a large amount of freedom as to where you want to put your money. In fact, there are many self-directed IRAs that focus on gold, platinum or silver and other precious metals. There are self-directed IRAs that tend to focus on real estate holdings. Of course, in the past few years, real estate hasn’t exactly done well in the United States. While real estate is slowly beginning to recover, it hasn’t really fully recovered yet. Back in the mid 2000s, it’s not uncommon to buy a property at two hundred thousand dollars and in a few years unload it for five hundred thousand dollars or more. That’s how crazy the real estate market was in the United States, especially in California and New York. Well, those days are over. Thanks to government regulations and mortgage issues as well as huge numbers of foreclosed properties in the US real estate market, prices have continued to remain soft. Be that as it may, you might want to put your self-directed IRA composed of 401(k) rollover funds into real estate, precious metals or other forms of investments that would protect you from inflation.

The Downside of a Self-directed IRA

The downside of using a self-directed IRA for your 401(k) rollover fund is that you are in charge, nobody else is. That’s right. Instead of paying a manager that makes millions of dollars a year to manage billions of dollars of managed assets, self-directed IRA basically puts you on the driver seat. You make the call. Unfortunately, you better make the right call or your retirement fund and your 401(k) rollover fund will suffer. This is a very heavy burden to bare alone. This is a lot of responsibility. If anything, you get the psychological benefit of having somebody to blame when you invest in a group fund or a mutual fund because somebody else is managing your money. However, with a self-directed IRA, all the blame is on you. This is why it’s very important to study your options carefully. You have to know where to put your 401(k) rollover fund, and you have to pick the right investments. The good news is that with enough practice and enough research, you can start picking winning investments. There is a study that said that in the 1980s, you could have taken a monkey and show that monkey the New York stock exchange listings and that monkey throw darts at that listings and buy stocks in the companies hit by that dart. Chances are, you could have made a lot of money. That’s how amazing the stock market was. Obviously, the stock market goes through cycles and it’s not a good idea to put all of your 401(k) rollover fund into stocks. Maybe it’s a good idea to diversify both into precious metals, real estate commercial paper and government bonds. With that said, you really need to be clear as to where your self-directed IRA is focused on so you can maximize the investment value of your 401(k) rollover funds. The winning strategies to pursue are diversification, long-term holding and fundamental investments. It’s not a good idea to go into momentum trading with your self-directed IRA. Momentum trading is all about making money of the short-term gains and losses of a particular stock in any particular day. In other words, day trading. Not a good idea with a self-directed IRA. Your 401(k) rollover funds need a more stable investment vehicle.

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