Retiring? 7 Great Reasons To Rollover Your 401(k)

I have counseled hundreds of people retiring over my career as a financial advisor. Some were exited, some were scared to death about the new reality of their situation.

Once you’re no longer working at a company you need to consider move your money to a retirement account not tied to your former employer.

Here are seven reasons to roll over your 401(k) to an IRA:

More and better investment choices. This is probably my number one reason to roll your 401(k) to an IRA. Most 401(k) plans are limited to anywhere from 10 to 30 different choices. If you invest in an IRA, then the sky’s the limit for the investment choices. Many of these investment choices come with higher fees in for 401(k) plans.

Lower fees and expenses. Some 401 k plans have added administration expenses, which will cut into your returns over longer periods of time. With an IRA you’re able to avoid the extra administration costs. Check with the plan administrator to see if these fees and charges apply to your retirement plan.

Cashing out is a no-no. If you can in your 401(k) you’ll have to pay income tax on the entire amount distributed. This could drive you into a higher tax bracket. It could be more beneficial to take this distributions over long periods of time, or delay as long as you can. This will give your IRA more time to grow.

401(k) changes. Your 401(k) investment choices, trustees, and fees can all change at any time. If you don’t work there, you might not get the latest information as quickly as those who do. When these big changes are scheduled to occur, the employer usually holds information sessions to communicate the changes. If you don’t work there, you’re not going to know about the changes. If you don’t pay close attention to your 401(k) statements, you might not even know about the changes until after they occur.

More control. Most 401(k) plans have restrictions about something. That’s fine if you are still employed, but when you leave you should enjoy the maximum flexibility regarding your investments. The only way to have complete control….rollover.

Company stock. I still run into people who have a large portion of their 401(k) in company stock. The argument I’ve heard over the years is that the returns are better than that of the market. That may be so, but the level of risk is definitely commensurate with that company stock. All I have to say about that is…Enron. Enough said.

Consolidate and simplify. The average employee changes jobs about 11 times according to Fidelity Investments. Many times those 401(k) accounts are left at the old employer. By rolling over those plans to an IRA, it’s much easier to maintain, and there’s a possibility that fees will be cheaper in an IRA.

When you retire there is a lot to think about. Retirement benefits are one of the most important. Don’t neglect your 401(k) rollover when you stop working. It’s a nice sum that will be important to you for a long time to come. If you need help with your rollover, write me at david@lexwealth.com or call me at (859) 225-2596.

Please be sure to carefully consider the differences between your company retirement account and investment in an IRA. These factors include, but are not limited to changes to availability of funds, withdrawals, fund expenses, fees, and IRA required minimum distributions.