What is the Safest Place to Move 401k Money?

An economic downturn could threaten to wipe out your retirement savings, but you can safeguard them by moving assets to locations with greater options, lower fees and increased yields.

Rolling over money to an Individual Retirement Account (IRA) can often help prevent tax distributions if done correctly.

1. IRAs

IRAs give you complete control of your investments and retirement savings while offering tax advantages as well. You can choose between traditional or Roth IRAs based on your income levels.

Moving your 401(k) money to an IRA allows you to continue to invest in the same options that were available during work. Depending on your risk tolerance, some of your funds could also be placed into safer investment vehicles like bonds that offer steady returns during market crashes.

Also consider other safe money investments, including cash management accounts, certificates of deposit (CDs), Treasury securities, corporate bonds and savings accounts with competitive interest rates. It should be noted, though, that these may not offer as much growth potential than more risky ones. Stable value funds offer low risks with secured principal – though their returns may be lower than other safe-money options.

2. Bank Accounts

Bank accounts offer safe, secure ways of depositing funds that you don’t plan to spend immediately. Although bank accounts typically don’t pay much in interest, they’re easy to access and often more flexible than IRAs that may require providing one or more forms of identification and meeting certain minimum balance requirements.

Avoiding the IRA rollover process altogether by moving directly from an IRA account to a checking or savings account in your current bank, though this requires cashing out and paying an automatic 20% tax withholding fee, which may be too much.

Most banks also charge fees to open and maintain checking and savings accounts, although some offer no monthly maintenance fee at all. Federally insured bank accounts cover deposits up to $250,000 per depositor/account category should a financial institution fail, providing some protection.

3. Brokerage Accounts

Use of a brokerage account enables you to access a broad array of investing options, including ETFs, individual stocks and bonds as well as tax-favorable special accounts like health savings accounts or precious metals. Finding an appropriate broker that offers all these services and provides excellent investment research is essential.

Ideal online brokers provide comprehensive investing services at a competitive price, with zero trading commissions and minimal account opening fees. Avoid brokerage firms charging front-end commissions and high ongoing fees, such as those associated with SIPC (Securities Investor Protection Corporation). SIPC will protect cash and assets up to $500,000 should their firm become bankrupt; however, SIPC cannot protect against poor advice given through investment accounts like 401k plans.

4. Mutual Funds

Your best option when investing your 401(k) money lies with low-risk investments that offer steady growth but with lower return potential – such as fixed-type annuities, CDs, Treasury securities, corporate bonds or savings accounts that are backed by either the federal government or financial institutions.

Stable value funds provide guaranteed investment returns; typically through a combination of bond portfolios that offer protection against loss and higher-yielding money market investments.

When investing in an IRA, select a fund company with low-cost funds, no administrative fees for IRAs and an array of options to create a diversified portfolio. Also consider tax-saving mutual funds (also called ETFs), as they often feature passive management styles with reduced costs compared to mutual funds.

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