An IRA is short for “individual retirement account”. It’s a type of account that you can open on your own, and doesn’t depend on your employer. It’s also an account where you can transfer any 401(k), or other employer-sponsored account, savings you accumulated at a prior job. Think of it as a big pot that you pour your 401(k) gold into over time.
Many people move their old 401(k)s into an IRA. Here’s why it can be a great choice for you too:
Consolidating your retirement funds into an IRA makes it easier to keep track of your retirement savings, and make sure they're no longer tied to your former employer
IRAs generally have lower fees than 401(k) plans, so it can help you avoid paying ongoing 401(k) fees
IRAs provide similar tax benefits to 401(k)s so you can continue growing your savings in a tax-deferred account
401(k)s typically have more limited investment options, so moving into an IRA allows you to pick from a wider range of investments, or have it managed automatically
Transferring 401(k)s, or other employer-sponsored retirement accounts, into an IRA is a special type of transfer called a “rollover”. Rollovers are generally tax-free and don’t count against your annual contribution limits. This makes IRAs great for consolidating and keeping track of all your retirement savings as you change jobs over time.