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By: Brian Bishop

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2021-01-21

Should I Roll Over My 401(k) to an IRA

Investing in the Future

If you’re changing jobs or are retiring, you’re probably wondering what to do about your employer-sponsored retirement plan, whether it’s a 401(k), a 403(b), or a 457 plan. Should you leave it where it is, roll it into a plan sponsored by your new employer, or roll it over to a self-directed IRA? Each person’s situation is different, but here are some basic considerations to keep in mind as you determine what to do with your investments.

 

FREEDOM TO CRAFT YOUR PORTFOLIO

Most employer-sponsored retirement plans offer a selection of pre-set portfolios. You can choose the best option out of the bunch, but you can’t select the securities you want included in your portfolio. For instance, if you were a huge fan of a specific auto manufacturer and really wanted them included in your portfolio, you may not have that freedom with your employer-sponsored plan. If you wanted to invest only in environmentally conscious businesses, you may not be able to do that. With a self-directed IRA, you have the freedom to create a mix of stocks, bonds, and other securities that mirror your values and your interests.

 

WITHDRAWAL FLEXIBILITY

Withdrawing funds from any retirement account is complicated because it can trigger penalties and taxes if you’re not careful. In general, you will have to pay taxes and a 10% early-withdrawal penalty if you withdraw money before you turn 59½. If your money is in an employer-sponsored plan, you can withdraw money penalty-free in the calendar year that you turn 55 so if you’re planning for an early retirement, it may be better to keep it in your employer-sponsored plan.

 

Employer-sponsored plans vary as to how you can withdraw from your account. They may require that you take withdrawals of a specified amount at certain intervals (quarterly or monthly, for example), or that you withdraw all of your money in one lump sum. Or they may allow you to withdraw what you want, when you want. It depends entirely on the plan you’re in, so it’s worth researching. With an IRA, you won’t be able to withdraw funds until you turn 59½, but you can plan your withdrawals on your schedule.

 

One additional thing to note is that you will not need to take required minimum distributions (RMDs) until you retire if you keep your money in your employer-sponsored plan and are still enrolled after the age of 72. With an IRA, you will need to take RMDs once you reach that age.

 


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BETTER SERVICE

Once you leave an organization, you are likely to become much less important to your (now) former employer. They aren’t likely to prioritize your needs if you request changes to your plan so you may not get timely and friendly service. This will depend on your former employer of course, but it’s often better to have your money in a place where you know you are top priority.

 

LOWER COST

Though it is not always the case, your 401(k) plan may have higher administrative fees than an IRA. Fees and other costs depend on what types of investments you include in the plan. If your IRA is composed largely of exchange-traded funds (ETFs), which follow an index and therefore don’t require much oversight by your advisor, the cost could be lower. If it’s filled with mutual funds that need more regular attention and balancing, you may pay more.

 

Learn How to Retire in Style

 

A LAYER OF PROTECTION

The funds in your 401(k), 403(b), or 457 plan are protected from creditors. This is due to the federal Employment Retirement Income Security Act (ERISA), which sets standards for employer-sponsored retirement plans. In general, IRAs do not offer the same protection, though laws vary by state. If you work in an industry that attracts lawsuits, this could be a good reason to stick with your employer’s plan.

 

FIDUCIARY GUIDANCE

The advisor for your employer’s plan acts as a fiduciary. Fiduciaries are required by law to act on your behalf and prioritize your interests. IRA advisors are not required to act as fiduciaries. Most advisors will play by fiduciary guidelines, but they don’t have to.

 

FINAL DECISIONS

Those are some of the main concerns you should consider as you determine how to manage your retirement funds. Your financial advisor can help you by conducting a rollover analysis, to ensure you are making the best decision based on your personal situation.

Regardless of what decision you make, if you are rolling over funds, make sure to read this 401(k) rollover blog.

 

OTHER ARTICLES YOU MAY ENJOY:

Your Financial Advisor Meeting Checklist

What is My Investment Risk Tolerance

Investing 101: How to Invest


The views and opinions expressed in this blog are those of the authors and do not necessarily reflect those of VSECU.

 

Representatives are registered, securities sold, advisory services offered through CUNA Brokerage Services, Inc. (CBSI), member FINRA/SIPC, a registered broker/dealer and investment advisor, which is not an affiliate of the credit union. CBSI is under contract with the financial institution to make securities available to members. Not NCUA/NCUSIF/FDIC insured, May Lose Value, No Financial Institution Guarantee. Not a deposit of any financial institution. FR-3391262.1-0121-0223

About Brian Bishop

Brian is senior financial advisor at VSECU. With 20 years in the industry, he has seen many ups and downs. His job is to help you, whatever your age, create a sound financial strategy for the lifestyle you want to live in retirement.

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