Rolling over a 401K is the process of moving your retirement savings from an employer controlled account (401K) into an IRA. This is a move that I recommend to anyone that has switched employers, retired, or has reached age 59 ½ and is still working. You are eligible to roll over a 401K if you no longer work at the firm that provided your 401K, if you have retired from the firm that provided your 401K, or if you have reached the age of 59 ½ at your current employer*. Below are 5 reasons it is smart to rollover your 401K into an IRA.
1. There is no downside
A 401K to IRA transfer is done through a check from the 401K provider directly into your IRA account. Though assets would have to be sold out of the 401K in order to receive a check, there is no tax event since both account types are tax deferred.
2. Greater transparency
Unfortunately, 401K plans have a lot of hidden charges. Investors don't know how much they are actually paying for their 401K, as it simply gets cut out of their overall performance. This is a known problem, and the department of labor has recently come out with a set of fiduciary rules for 401K plan providers in order to make them more transparent. However, it does not look like these rules will be put into place for another two years. With an IRA, the investors can have a clear picture of their investments with complete access to their fee structure.
3. Greater control
A 401K plan is limited to the investment options that are chosen by your employer and their plan provider. Do you really think that a person working at human resources at your firm is an expert at choosing investments? It simply should not be their job. Additionally, the investment options are usually limited to mutual funds only. In an IRA, you have free range to choose any investments that you choose, including individual stocks, ETF's, bonds, and alternative investments, without limits by your plan provider and employer.
4. Personal service
Have you ever tried to ask a question about your 401K and wind up talking to a number of recordings and waiting on hold with your company's benefits department? The answer is likely yes. When rolling over your 401K into an IRA, you can have access to a wealth advisor. When using a wealth advisor, managing your IRA gives you a completely different level of service. You can call your advisors line directly or email them directly. It is very unlikely that a wealth advisor will make any of their clients wait very long on anything. Their business relies on customer satisfaction.
5. Professional management
When money is rolled over into an IRA, you have the option of professional management, also known as using a Wealth Advisor. There are extraordinary differences between choosing from a list of mutual funds, and using professional management. A wealth advisor will help you choose your investments by reviewing all of your assets, liabilities, and taking your goals into consideration. Try using a wealth advisor that does a complete financial plan, so that your IRA will fit into the rest of your investments, and help you achieve your financial goals.
Many individuals are attached to their 401K plan of a previous or current employer when they don't have to be. Rolling over into an IRA is an easy way to give yourself greater transparency, professional advice, and the prospect of higher returns for an easier retirement.
*This is called an in-service roll over, and is only allowed in certain cases depending on the company you work for.
This blog is provided for informational and educational purposes only. Investing involves the risk of loss and investors should be prepared to bear potential losses. No portion of this blog is to be construed as a solicitation to buy or sell a security or the provision of personalized investment, tax or legal advice. Information contained herein is subject to change and there is no guarantee that the opinions expressed herein will come to pass. Certain information contained herein may constitute forward-looking statements that indicate future possibilities. Due to known and unknown risks, other uncertainties and factors, actual results may differ materially from the expectations portrayed in such forward-looking statements. Your experience may vary based on your individual circumstances, and there can be no assurance that we will be able to achieve similar results in comparable situations. Nothing herein represents actual client experiences nor should it be interpreted that any information contained herein is representative of our clients' experiences. Certain information contained in this report is derived from sources we believe to be reliable; however, we do not guarantee the accuracy, suitability, completeness, relevance, or timeliness of such information, whether linked to this website, any blog post, or incorporated herein, and assume no liability for any resulting damages. A complete list of portfolio holdings and specific securities transactions for the preceding 12 months is available upon request. Any reference to a market index is included for illustrative purposes only as it is not possible to directly invest in an index. Indices are unmanaged, hypothetical vehicles that serve as market indicators and do not account for the deduction of management fees or transaction costs generally associated with investable products, which otherwise have the effect of reducing the performance of an actual investment portfolio. A description of each index is available from us upon request.