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Should I roll over my 401(k) to an IRA?

Jan 05, 2012 by Cory from San Diego, CA  |  Flag
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5 votes

Cory, there are very few reasons to not rollover your 401(k) into an IRA but here is an article I wrote about all the options you have: http://nicholasolesen.squarespace.com/blog/wednesdays-qa-with-nicholas-what-should-i-do-with-my-old-401.html

View all 5 Comments   |  Flag   |  Jan 06, 2012 from King of Prussia, PA
Paul J. Hynes, CFP®

Nick's article is very thorough, informative and well organized. I highly recommend this as a good guide for anyone using this website. I'll add one point to consider. If you decide to roll over your 401(k) to an IRA, you still reserve the right to decide later to roll these funds to another employer's 401(k) plan. Be wary of comingling the rollover IRA with a traditional IRA that contains after-tax contributions. Since you can only roll pre-tax contributions and earnings back to the 401(k), it might get messy trying to figure out which is which. Not impossible, but messy nonetheless.

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Flag |  Mar 07, 2012 near San Diego, CA
Nicholas Olesen, CFP®, CRPC®

Paul, that's a great point. Thanks for adding it.

Flag |  Mar 07, 2012 near King of Prussia, PA

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2 votes

Yes. Most 401k plans have limited investment options and all of them have embedded fees and expenses which can be reduced or eliminated through a self-directed rollover IRA. One reason that you might want to keep the 401k plan is if you can maintain a loan option, but most plans terminate this option if you are no longer an employee. Some 401k plans are so expensive and have such a poor investment lineup that almost any alternative would be superior. Whether you choose to work with an advisor or manage your roll over account on a self-directed basis, be sure to align your portfolio risk with your long term needs and goals, diversify your exposure by asset class and style, and watch the expense ratios on your managed investments. Best of luck!

Comment   |  Flag   |  Jan 29, 2012 from San Francisco, CA

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2 votes

Cory, as the others here have indicated, you will have more control and better investment options available to you in an IRA, compared to your 401k, in most cases. Before you do, you will want to ensure that an IRA has the same legal protections as a 401k does in your state. Most states offer the same protection from creditors, etc., but some do not. If yours does not, then you should consider that before moving.

As for investment options, I highly recommend a globally diversified, balanced portfolio of high quality funds that will help give you both offense and defense. If you would like more information, check out the book by Dr. Craig Israelsen called, "7Twelve: A Diversified Investment Portfolio with a Plan" on Amazon. This is a solid strategy. If you don't want to do it yourself, then you could try to find an advisor in your area that uses this strategy. Our firm can also help you in this regard if you don't want to start from scratch, as this is the same type of investment strategy we use, with a few extras. Feel free to reach out if you like. We can be reached at 303-422-7351.

2 Comments   |  Flag   |  Jan 30, 2012 from Arvada, CO
Mike

I like the book rec.

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Flag |  Jan 30, 2012 near San Diego, CA
Victor Guettlein, CFP®

Great, Mike! I'm glad you found it valuable. I would add that I've actually had better results with actively managed funds than index funds with this asset allocation strategy. Of course, good fund selection goes a long way. If you don't have the time or desire to do your own fund due diligence, and you choose not to work with an advisor to implement the strategy, then index funds would be your best bet. Feel free to reach out if you have other questions or thoughts.

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Flag |  Feb 08, 2012 near Arvada, CO

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Ryan A. Fox, MBA Level 19

Yes, in the vast majority of cases you should have access to a wider variety of funds and probably a more flexible approach. Take care as to what you roll into. It needs to be an IRA but within the IRA you might find a number of options from stocks and bonds to mutual funds to annuity products. The key is to know exactly what your funds will be invested into within the IRA.

Comment   |  Flag   |  Feb 08, 2012 from Gettysburg, PA

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