Should I Roll My Old 401(k) to an IRA?

 

Commonly when individuals leave an employer they leave their 401(k)’s in the plan. Why? I believe the reason is, fear of making the wrong decision teamed with a lack of information. Following I will draw some clear distinctions between a Rollover IRA and money left in a 401(k) plan.

 

Investment Options:

Leaving your retirement dollars in your old 401(k) plan limits the investment options available in the plan, typically eight to twelve mutual funds. By opening a Rollover IRA with your advisor you will greatly increase the investment options available to you to include all mutual funds available, stocks, bonds, ETF’s, REIT’s, options, and many other investment alternatives. In essence, you will greatly enhance your ability to diversify your retirement assets.

 

Fees and Expenses:

Retirement dollars left in a 401(k) plan are not only subject to management fees imposed by the underlying investments but also fees imposed by the plan itself. Before jumping to an IRA due to 401(k) fees you must do your homework – different IRA account providers have different fee structures, largely dependent on the level of service you desire.

 

Accessibility of Retirement Dollars:

Generally, upon reaching age 59 ½ assets in an IRA are eligible to be withdrawn at any time. On the other hand, although uncommon, some 401(k) plans limit the number and/or timing of withdrawals from the plan.

 

Compliance with IRS RMD Regulations:

Upon reaching age 70 ½ the IRS requires participants of certain retirement plans to take distributions of those plans. A competent advisor should ensure that upon reaching age 70 ½ you will not be penalized for not taking, or taking the wrong amount, of your IRS mandated Required Minimum Distribution. Leaving retirement assets in your old 401(k) plan you, more than likely, will be responsible for knowing when to take and calculating the amount to take, your Required Minimum Distribution.

 

I hope you have found this information helpful. But, these are just a few of the considerations to take when trying to decide whether or not to leave your retirement assets in you old employers 401(k) plan or opening an IRA.