4 Reasons to Roll Over Your 401k
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You were miserable in your old job and you’re excited to be starting a new one that’s much more to your liking. Say good riddance to an overbearing boss, long hours, low pay and high stress. But there’s one thing you shouldn’t leave behind.
If your money is still sitting in your previous employer’s 401k account, it’s time to move it into an account where you can control the fees and investment choices instead of letting your old employer make those decisions. This move is commonly referred to as a “401k rollover,” and depending on how quickly you act, it can have a significant impact on how much you’ll have at retirement.
Why Roll Over?
Rolling over your previous employer’s 401k account into a single IRA is the only way to make sure that your 401k accounts follow proven investing strategies such as asset allocation and diversification, as well as paying the lowest fees you can and being able to invest in the best performing securities. And with an IRA rollover, you preserve all of the existing tax advantages of your 401k. Here are some of the advantages to rolling over:
1. More and Better Investment Options
In an IRA, you can select your own investments. You won’t be limited to the funds and managers selected by your employer. Consider that the average 401k employer plan contains just 13 investment choices making it difficult, if not impossible, to achieve a diversified portfolio whereas an IRA can give you access to thousands of investments, including stocks, bonds, CDs, and mutual funds.
2. Lower Fees
Under a 401k, the average annual administration fee charged to your account is 0.50 percent. These fees represent money that is being wasted and worse, this money isn’t being used to fund your investments. Most IRA rollover accounts do not have any administrative fee associated with them and this represents an immediate saving. In addition, because you can choose where to invest with an IRA account, you’ll get to take advantage of funds that typically have lower expense ratios than funds available through your 401k.
3. Easier Account Management
With your retirement money earned from prior jobs in a single place, you’ll be able to see whether you are on track for retirement, without having to check multiple accounts. You can easily calculate your real return and drill down into the performance of individual funds or other investments.
4. Easier Asset Allocation
With one account for consolidating your retirement assets, you’ll be able to more readily see the mix of investments in your portfolio and adjust the balance as necessary to stay on track with your retirement goals.
How Mint Can Help
Let Mint track your new IRA. Mint can provide unprecedented visibility into your retirement accounts. You’ll see how much you are holding in your preferred asset classes and if your portfolio matches your intended asset allocation. In addition, Mint will show you how your portfolio is performing compared to the S&P 500 index, right down to the level of individual stocks.
The financial meltdown of late 2008 may have left you with a feeling of uncertainty about your financial future. But death and taxes notwithstanding, there are still some things you can control. First and foremost is taking charge of your 401k. Don’t leave money on the table. Rollover those 401ks from a previous employer today and start taking advantage of the broader investment choices, lower fees and simplified account management that comes from an IRA rollover account.
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19 Comments so far
leave a commentThanks for the tips. I have one concern though: shouldn’t we wait until the economy is better to rollover our 401K’s so that we can recoup some of our losses as our investments get back on track?
@ebunoluwa,
Thanks for raising this. When you rollover your 401k investments you do not need to liquidate them. You can retain them in your new IRA Rollover account. That way you are free to wait and try and recoup some of your losses as your investments get back on track. In the meantime, if you are concerned about the value of your portfolio you should want to avoid any unnecessary fees that eat away at your nest egg. On average, annual administrative fees in a 401k are 0.50% of the amount held by you under your plan. This is wasted money. You will not have these fees in an IRA Rollover. Bear in mind also, that when your investments to recover and you decide to do some rebalancing, you will want to have a wide choice of funds to invest in with low management fees. An IRA account can provide you with this. A 401K account does not.
Anton (Mint employee).
This is a great calendar and totally helps my wife and I plan for the next stage of our lives – Children! Not only that, when the kids get to the proper age, being able to look at their accounts would be a great way to educate them about money management and investments.
This varies from company to company, but most 401k plans won’t allow non-spouse rollovers or “stretches”
In other words, if you and your spouse were to both die, your children or other heirs likely couldn’t roll over the 401k to an “inherited IRA” and take Required Minimum Distributions for the remainder of their life expectancy while maintaining tax deferral.
Under current rules, any non-spouse beneficiaries would have to cash out the 401k or take distributions over a maximum of 5 years.
There has been a lot of legislative discussions about changing this, but to my knowledge nothing permanent has been finalized.
In my opinion, this is perhaps the most important reason to consider an IRA Rollover of your 401k in order to provide maximum benefits to your heirs.
I received my quarterly 401K statement from paychex today and saw the following on the account I had through a previous employer:
Beginning balance: $8479.02
Conversion Assets ($8387.02)
Gains/Losses: ($90.53)
Ending balance: $1.47
I then looked ae transaction history and saw that four transactions were made on August 18th called “conversion debits” and the definition for that on paychex is: “Conversion debit transactions are the result of adjustments needed for assets transferred in from a previous recordkeeper”.
Does this mean that my previous employer took the money out of my 401k and is justified in doing so using the reasoning that it costs them that much to do the record keeping on my 401k?
Or do you think it is possible that my previous employer switched from paychex to another company without notification?
Please advise…
Thank you.
I have 2 small 401k’s in former employer accounts. My wife has 1. I also have a very small IRA with a bank I do not wish to maintain a relationship with. Can they all be moved to a single IRA?
@Wayne
The answer is yes. You can rollover all of your 401k’s to a new IRA Rollover account opened at a provider of your choice. You can then transfer your small IRA with your bank to your new IRA rollover account. Please feel free to visit Mint’s IRA Rollover Advisor to see the range of account providers you can go with. You can link there from this article.
@Kim
Unfortunately, it’s unclear what is exactly going on with your 401K statement. You should check with your employer’s HR department, assuming they are responsible for administration of your plan.
A 401(k) plan may allow participants to take their benefits with them when they leave the company, the money contributed may grow through investments in stocks, mutual funds, etc.
Great article. I never knew about this option when switching jobs. The tool is neat too, showing how much I could possibly save.
(found this article from the Mint weekly updates email)
I have a 401k right now and my employer is matching this. If i rollover it into an IRA, would it mean I will soley continue funding my investment and lost my employer’s participation? I like the advantages that you can get from IRA (low fees, broader portfolio) but on the other hand I don’t want to loose free money that my company is giving me…like at least $200.00/mo.(this for me is a real advantage). Please Advice. Thanks
You are right – you want to contribute enough to your 401k to obtain your employer’s match. Generally, you cannot rollover from your current 401k to an IRA until you leave your current employer.
You all really should call Fidelity, T. Rowe Price, or Vanguard and talk to them for free instead of listening to a person on a website. Talk to a real person at those institutions and get an honest opinion… everybody’s situation is different and it’s irresponsible giving advice to anyone without having more detail..
I am new on this. How much can we (I and my wife) can roll over from 401 to an IRA account. All? or an X amount a year? Thanks.
Why be automatically biased against 401(k)s? My old company’s 401(k) has much lower fees on some index funds than even Vanguard because they have institutional deals. Quality advice would be to compare fees and funds, not to just advise to ditch a 401(k). I would not trust your company to manage my money if you cannot try to be honest from the start.
So true. My ex-employer’s plan has NO fees (even as an ex-employee, which I’ve been for almost two years not) whereas an individual IRA might and I know my current employer’s plan does. Since I haven’t lost any access privileges to my old account (including changing how the funds current there are invested among the plan’s fund choices, which are fine with me), where is my incentive to move the money anywhere else at the moment?
Timely push on rolling over 401(k)s — especially in light of the article on the WSJ this week, “The 401(k) Rollover Conundrum” at http://online.wsj.com/article/SB124594605748554567.html
Tell me – what are my 401(k) fees? How can you justify telling me I am paying too much when you cannot quantify my existing fees?
I believe it is highly irresponsible to post alerts driving the rollover of 401(k)s on the basis of “high fees” when you clearly are not doing the work the alert implies.
Tell me how this was not purely self serving?
If you are retiring and are 55 or older but not yet 59 and a half, you may want to wait to rollover your 401k balance to an IRA. You won’t be able to access the IRA funds without paying a penalty but if you can acccess the 401k funds if you terminate service after the year in which you turn 55.
That’s a well written article, not only are the advantages of rolling over to a single or traditional IRA immense, but you also get to choose between deductible & non-deductible 401k contributions.
If you choose to rollover your 401(k) account to a traditional IRA, you can make two types of contributions, i) a deductible contribution where you can deduct from your income tax and ii) a non-deductible contribution where you can’t deduct your contributions from your income tax.
Source: http://www.research401krollover.com/
The advantage of rolling to a deductible traditional IRA is that you can deduct your contributions from your income tax now. However, if you rollover to a non-deductible traditional IRA, you will not be able to deduct your contributions from your income tax now. However, there is always a reverse side. With a deductible IRA, you will have to pay income tax when you withdraw the funds upon retirement, typically at the age of 65.