I always rolled my 401K's over to a traditional IRA when I left a company because an IRA at a good brokerage has more choices and usually at a better cost. However, if you are content with Target Date funds and don't want to try to find other investments, it may not be worth it for you.

One thing I will point out is that Roth is great, but not necessarily better than traditional deferred 401K or IRA. While you are working, you are paying taxes on your Roth contribution at your top marginal income tax rate, which is probably at least 22% fed. After you retire, depending on your income, a significant amount of what you withdraw from a traditional IRA could only be subject to a 10% or 12% FED rate (based on 2024 rate, probably going to change some in the future). So you could be paying 22% today to save 12% when you retire.

A Roth IRA is very useful and flexible.

The ideal approach is to save in traditional tax deferred IRA/401K until you have enough assets to meet your basic spending in retirement up to the top of the 12% tax bracket, then save Roth for everything over that. That way, if you use Roth for a large expense in retirement like a car or something you won't pay a tax penalty, which you would if you had to get the money out of traditional.

Easier said than done, but a simple rule like 70% traditional tax deferred and 30% Roth is probably the best plan for most people. Keep in mind that you can convert traditional to Roth after you stop working, and if you could amass enough traditional savings to get by for a year or two without drawing from your retirement assets, you could convert a lot of deferred to Roth at a lower tax rate.

This post was edited on 4/4/24 at 11:23 am