What To Think About When Rolling Your Company Retirement Plan Into An IRA
When you’re weighing a possible rollover from your company retirement account into an IRA, there are several things to think about first.
The Department of Labor has outlined new rules for advisers to follow when rolling over retirement plans. Whether it is a 401(k) to an IRA or an IRA from one custodian to another, there are several considerations that need to be evaluated before making a change. If you are initiating a rollover on your own, it may be beneficial for you to evaluate these items as well.
You should be able to get all the information you need on your plan from your statements, Annual Participant Fee Disclosure, and Summary Plan Description. If you do not have access to these documents, you can usually request them from your human resource department.
All-In Fees and Expenses
Before deciding whether to do a rollover, you will want to compare the fees within your 401(k) plan vs. the fees for the IRA. Fees in the 401(k) could include any mutual fund loads, plan expenses, and any underlying fees. Sometimes the fees may be higher in your 401(k), but there may be additional benefits to keeping your funds in the 401(k) wrapper.
It would be up to you to decide whether any benefits are worth the fees. For example, if you are opening an IRA and moving over to an investment adviser there will be additional management fees paid to your adviser, but you may also receive financial advice, retirement planning or wealth management services.
Available Services
Some retirement plans, such as 401(k)s, provide added creditor protection, and the ability to take out a loan or take hardship withdrawals, which are not available with IRAs. In certain circumstances, you may be able to keep some asset protection if 401(k) funds are rolled into a separate IRA and not commingled with other IRA funds. Some 401(k) providers provide investment education to participants that may be valuable if you are a younger investor. You will also want to look at your vesting schedule and company match to determine whether they may be affected. In addition, some retirement plans offer Roth 401(k) contributions, which may not be available to you otherwise.
Available Investments and/or Products
Several 401(k)s offer participants limited investment options. On one hand, that could be viewed as a positive, because when there are too many choices it can confuse participants and make it harder to manage the plan. However, some plans’ limited options may be more expensive, such as actively managed funds, and they might not offer any low-cost index options.
If you roll over funds into an IRA you then have access to a much wider universe of investments. That said, this should not be your only decision criteria. Some company retirement plans offer a “BrokerageLink” option, which allows you to move funds from the “core” 401(k) account to a brokerage account – another way to access more investment options. Some plans have restrictions on what can be invested in a BrokerageLink so you would want to consult the plan document before deciding.
Guaranteed Income/or Interest Rates
Are you invested in anything earning a guaranteed interest rate that you will lose by moving from a 401(k) to an IRA or other plan? For example, TIAA CREF’s 401(k) offering has TIAA Traditional, which could be earning 3%-4% – a great return in this environment. You may not want to roll out funds into an IRA and lose access to this option.
Tax Considerations
If you are required distribution age but still working past retirement (providing you are not an over 5% owner in the company), you can defer taking money out of your 401(k). Unfortunately, if you have an IRA on the side, that IRA is subject to required distributions at age 72, even if you continue to work. If you leave the funds in the 401(k) you can still contribute and don’t have to take money out.
One caveat related to the Roth part of a 401(k): If you are age 72 and a greater than 5% owner or retired you have to take a distribution from the Roth side. A way to get around this is to roll the Roth 401(k) balance into a Roth IRA prior to age 72.
Also, if you happen to be in a zero-income year and all you have is retirement funds and need cash, it may make sense to take a taxable distribution rather than do a rollover.
Distribution Considerations
If your 401(k) retirement account is invested in an insurance product or annuity you will want to evaluate whether there are any surrender charges. Usually, annuities cannot be moved to IRAs in kind. Some annuity products may have certain benefits that will be lost if liquidated, so you will want to make sure you understand how your product works before making a decision.
Some plans may offer annuity options rather than a lump sum, which would be lost if you roll your 401(k) over to an IRA. You will want to look at the financial implications of the lump sum vs. the annuity options to see which option is better for your situation, especially if you have a spouse who can receive survivor benefits.
You will also want to check if there are any in-service distribution options or guaranteed payment options.
Beneficiary Considerations
If you are married, your 401(k) must list your spouse as a beneficiary unless your spouse signs a waiver. You can list anyone on an IRA as a beneficiary, so you may want to review your estate planning and beneficiaries if you make any changes.
About The Author
Roxanne Alexander, CFP®, CAIA, AIF®, ADPA®
Senior Financial Adviser, Evensky & Katz/Foldes Financial Wealth Management
Roxanne Alexander is a senior financial adviser with Evensky & Katz/Foldes Financial handling client analysis on investments, insurance, annuities, college planning, and developing investment policies. Prior to this, she was a senior vice president at Evensky & Katz working with both individual and institutional clients. She has a bachelor’s in accounting and business management from the University of the West Indies, she received an MBA at the University of Miami in finance and investments.
Categories
Recent Insights
-
Secure Your Legacy: Why Naming a Beneficiary for Your 401(k) Matters
When you participate in a 401(k) plan, you’re taking a significant step toward securing your financial future. But there’s an equally important, often overlooked, aspect of managing your plan: naming a beneficiary. This simple action ensures your loved ones are protected and minimizes complications if the unexpected happens. Here’s why it matters for both you…
-
A Memo from our Chief Investment Officer | March 2025
Market headlines can be overwhelming, especially in times of uncertainty. At Evensky & Katz / Foldes, we understand that economic shifts, policy changes, and market fluctuations can trigger real concerns about your financial future. In the letter below, our Chief Investment Officer, Lane Jones, shares insights on the current market environment, the impact of recent…
-
Ways to Talk Yourself off the Ledge When the Entire Market Seems Like it’s Falling to Pieces
Nobody likes to see their investments decline, especially during retirement when going back to work may not be an option. The first step is not to panic. Staying calm and rational can help you make better decisions. Market volatility is normal, and remember, markets can shift quickly in the other direction. In fact, 70% of…
-
Our Prediction Addiction
If you’ve ever felt the thrill of calling the market right—or the sting of getting it wrong—you’re not alone. As humans, we have an innate desire to predict, to control, and to feel like we’re ahead of the game. But here’s the hard truth: predicting the market is, more often than not, a fool’s errand.…
-
Roth vs. Pre-Tax 401(k): Which Contribution Strategy is Right for You?
When it comes to saving for retirement, one of the most important decisions you’ll make is whether to contribute to a pre-tax or Roth 401(k). Your choice could have a significant impact on your future tax situation, and understanding the difference is key to making the best decision for your financial future. In this post,…