WAIT…Before Rolling Your 401(k) into an IRA


August 13, 2014



At some point, many people consider rolling their retirement funds from a 401(k) into an IRA. It’s a tempting move. With an employer-based 401(k), you’re restricted to the investment options your company includes in the plan. With an individual-based IRA, on the other hand, the world is your oyster.


A rollover into an IRA may also generate income for your family’s wealth advisor. Keep that in mind if you are being advised to make the move. Before you do a rollover, be sure it is in YOUR best interest.


Here are a few of the questions you need to ask:


Are you turning 55 or older this year?

It’s possible for you to take distributions from your 401(k) plan before the traditional age of 59 1/2, without a penalty. Rolling into an IRA will cost you this option.


Might you need a loan against the funds?

You can borrow against a 401(k), at least as long as you are still working for the employer. You generally can’t borrow against an IRA.


Are you happy with your 401(k)?

Just because an IRA has more options doesn’t mean it’s better. If your 401(k) offers investment choices you like, and is stable, think twice before giving it up. Sometimes having too many options is a bad thing. If there’s a particular investment you’d like to access which is not in your plan, you can always use money from outside your 401(k) to invest in it.


Are there fee advantages to your 401(k)?

A 401(k) may offer access to investments not available outside the plan, particularly in the case of large employers. Or, fees for the investments may be reduced from what you would pay outside the 401(k).


For example, one of my clients, who worked for a large oil & gas firm, had access to a certain international fund through his 401(k). Its annual expense ratio was a very advantageous 0.35%. He could get the same investment through an IRA, but the expense ratio would have been 0.46%.


It sounds like a small difference, fractions of a percent. But let’s compare $1 million invested in the fund under the 401(k) or in an IRA, assuming 10% annual returns.


After ten years, staying in the 401(k) would earn this client over $25,000.


To see if your 401(k) offers fee advantages such as this, you’ll need to research the issue with your HR department or the plan administrator’s representative. Even better, come to us. We deal with these issues all the time and we’ll be happy to help you decide whether rolling over your 401(k) is the right move, given all the considerations.


At PARTNERSINWEALTH, we act as a sounding board for all your financial questions and concerns. Our expertise is removing the clutter from your financial life, putting you in control of decision-making and setting your mind at ease. For more information on the advantages of having a PERSONALCFO, please contact Jim Waters, CFP®, at PARTNERSINWEALTH, 713.964.4028 or jrw@partnersinwealth.com.


Past performance is not a guarantee of future results.