Should I roll over my 401(k)?

Every year, millions of Americans change jobs or retire and leave the workforce entirely. Most are faced with a seemingly inconsequential choice: what to do with your company 401k plan. Most financial advisors will recommend rolling funds out of your company retirement plan and into a rollover IRA (that they can manage for you and charge fees to do so). Many times, there are good reasons for doing so, even if the costs might be a bit higher. But let’s explore some of the pros and cons.

Pros — Why rolling over a 401(K) may make sense

More investment options

Most employer retirement plans have a limited menu of investments from which to choose, so rolling into an IRA can give you a LOT more flexibility in how you manage your portfolio. Also, because most company retirement plans are geared towards younger workers (with more time to invest), the fixed income or bond investment options tend to be kind of an afterthought.

Most large employer plans have pretty reasonable costs and a decent selection of funds. Smaller and medium size plans may not have access to these higher quality options and often carry high-cost funds and/or low-quality investments.

Simplify your accounts

If you have lots of small accounts with past employers (or several different accounts for the same employer), then consolidating these plans into one single account could make your life a lot easier. Remember, each 401k plan will eventually have its own required minimum distribution, so consolidating them will make those logistics easier.


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Withdrawal flexibility

Many employers place limits on when you can withdraw funds from their retirement plan. Also, you can’t do Roth conversions or qualified charitable distributions (QCDs) from company plans, so if these tactics are part of your plan, you’ll need to move those funds into an IRA to benefit from these tools.

Cons — Why you might want to stay in the company plan

Asset protection is better in company retirement plans.

Company retirement plans have much better creditor protection, so if you’re worried about being sued, you might want to consider keeping your retirement savings in a company retirement plan.

Fees may be lower in the 401K

While there are some expensive (often annuity based) company retirement plans, on average IRAs tend to cost more than 401ks. There are a number of reasons for this, including management fees and commissions (especially if you’re working with an insurance-based advisor). Large company 401(k) plans usually benefit from some purchasing power which often helps bring the cost down for participants.


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The average American 401k balance is well below the account minimums for most fiduciary advisors, meaning that you may be forced into higher fee or higher commission arrangements to manage your IRA. Even mutual fund companies have very high minimums for their lost cost investment options.

Early or late retirement

If you plan to retire early, you may benefit from keeping your money inside the 401K. Some company plans allow for penalty-free withdrawals after age 55. If your money is in an IRA, you must wait to age 59½ before you can take money out without penalties.

On the other hand, if you plan to keep working past age 72, you may be able to avoid taking Required Minimum Distributions (RMDs) from the 401K, whereas you can’t avoid IRA RMDs, even if you delay retirement.

Weighing the Pros and Cons

When weighing the pros and cons, it’s important to consider your own personal circumstances, goals and objectives. Are you looking for a personal relationship with an investment advisor, who can manage your IRA investments with an understanding of your situation, needs & objectives, time frames, and risk tolerance? Do you seek to simplify your accounts and have your IRA be part of the overall plan that your financial advisor administers? If having these services is important to you, it may swing your decision toward rolling over. On the other hand, you may decide that asset protection and low fees are more important, and that keeping the 401K where it is makes the most sense.


Invest $100K the Right Way

At some point, you may find yourself with $100,000 in the bank and questions on how to invest it.

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Because of the inherent conflicts involved, financial advisors will almost always lean in one direction (rollover). Fiduciary advisors will explain how they’re conflicted and then discuss what makes the most sense for you. In fact, the Department of Labor now requires that advisors act as fiduciaries in all rollover recommendations. This means they must put the investor’s best interest over their own, meet a professional standard of care, and charge no more than reasonable fees for their services.

At Blankinship & Foster, our advisors adhere to a fiduciary standard in all advice, including whether to roll over a 401K to an IRA. When you’re ready to change jobs or thinking about retirement, contact us to discuss the decision. We’ll help you make an informed choice based on your unique situation, goals and objectives.

Disclosure: The opinions expressed within this blog post are as of the date of publication and are provided for informational purposes only. Content will not be updated after publication and should not be considered current after the publication date. All opinions are subject to change without notice, and due to changes in the market or economic conditions may not necessarily come to pass. Nothing contained herein should be construed as a comprehensive statement of the matters discussed, considered investment, financial, legal, or tax advice, or a recommendation to buy or sell any securities, and no investment decision should be made based solely on any information provided herein. Links to third party content are included for convenience only, we do not endorse, sponsor, or recommend any of the third parties or their websites and do not guarantee the adequacy of information contained within their websites.

About Rick Brooks

Rick Brooks, CFA®, CFP® is a partner of Blankinship & Foster LLC and is the firm’s Chief Investment Officer. He is a lead advisor, counseling clients on all aspects of personal financial management. Rick serves on several boards. He is the Chairman of the Board of Girl Scouts San Diego, and also chairs the San Diego Foundation’s Professional Advisor Council. Rick and his family live in Mission Hills. Rick enjoys spending time with his family, theater, cooking, skiing, gaming and reading.

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