When transitioning out of a job, many employees find themselves pondering a critical question: what will happen to their retirement savings? If you have a 401(k) or a 403(b) plan, personal finance expert Suze Orman suggests that it may be the perfect time to consider a rollover, particularly into an Individual Retirement Account (IRA) or a Roth IRA. In a recent episode of her popular podcast, "Women & Money," Orman elaborated on why she has been an advocate of this strategy for several years.

The implications of this advice are significant, as they can have a lasting impact on your long-term retirement plans. Heres an in-depth look at Ormans guidance and how it could be beneficial for you.

Expanded Investment Choices After a Rollover

One of Orman's primary reasons for recommending the rollover of a 401(k) or 403(b) into an IRA is the enhanced flexibility that comes with it.

Retirement plans offered through employers often limit participants to a narrow selection of mutual funds or investment options predetermined by the company. Conversely, rolling over your savings into an IRA or Roth IRAespecially through well-known brokerage firms like Fidelity or Charles Schwabopens the door to a considerably broader array of investment opportunities.

Orman emphasizes this point: "When you transfer it and put it into an IRA, now you can buy exchange-traded funds, individual stocks. You could buy certificates of deposit. You could buy treasuries," she explains. "You could probably even purchase the exact same things that the 401(k) is invested in." This increased variety empowers individuals to craft a more personalized investment strategy tailored to their unique financial goals.

Additionally, for those interested in holding individual bonds as part of their investment portfolio, it is crucial to note that most workplace retirement plans do not allow for this option. Instead, participants are typically limited to bond funds, a situation that Orman personally advises against.

The Tax Advantages of a Roth IRA Conversion

Another critical factor to consider during this transition is the tax implications associated with the type of plan you possesswhether it is traditional or Roth. When rolling over a traditional 401(k) or 403(b), it is imperative to transfer the funds into a traditional IRA to prevent incurring taxes on the entire amount at the time of the transfer. In contrast, if you have a Roth 401(k), you can roll it over into a Roth IRA without facing immediate tax consequences.

Orman also encourages her audience to think strategically about converting from a traditional IRA to a Roth IRA, particularly in retirement. This advice hinges on the understanding that many individuals find themselves in a lower tax bracket after they retire compared to their working years. By making the conversion during retirement, you might pay taxes on the conversion amount at a lower rate than you would when required minimum distributions kick in later on.

In conclusion, navigating the landscape of retirement savings can be complex, but Suze Orman's insights provide crucial guidance for those considering a job change. Her recommendations on rollovers and IRAs could potentially lead to more robust investment strategies and tax benefits, thereby enhancing ones financial future.