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After I leave a company should I leave my money in the 401k or transfer it to an IRA?

Jan 04, 2012 by Dan from Ventura, CA in  |  Flag
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Toni, I believe that in almost every case you'd be better off rolling over your 401k assets to an IRA managed either by an investment advisor or by yourself. In doing so you'll have much greater flexibility as to the available investments and will likely be able to reduce your annual expenses assuming you roll those funds to one of the leading discount brokerage firms.

Comment   |  Flag   |  Jan 06, 2012 from Port Chester, NY

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Shawn A. Wilson Level 9

Toni-What are your plans for the account? Do you need current income or are you waiting for a later time. Doing a rollover into an IRA may cost you more in the form of higher expenses and upfront or deferred sales charges, not to mention commissions. If you are pleased with the selection of investments and do not have an immediate need for income then staying in the 401k plan is your best option. The Department of Labor also issued new rules regarding 401k plans which will require expenses of the plan to be disclosed to all participants and the plan sponsor is now allowed to provide investment advice based on specific guidelines. When you recieve your next 401k statement, take a close look and begin your investigation then. Good Luck Shawn

Comment   |  Flag   |  Jan 05, 2012 from Middleburg, PA

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Luke Collova Level 8

Toni, both Gregory and Shawn have identified important factors to consider. Rolling your previous employer 401(k) account into an IRA will give you access to a much broader choice of investment vehicles. But, you do need to check into the fees associated with doing the rollover. Then you need to check on the flip side, being the costs of having the assets in the 401(k). In most cases I agree it is prudent to roll to an IRA as it will give you the most freedom with choices like how to invest, if you want to use a manager and who that manager is and options like going with a Roth option. In conclusion, there is no automatic correct answer - it depends on you, your situation and your goals for the account. Good luck working thru the pros and cons of each and if you get stuck, then I would seek advice. Best, Luke

Comment   |  Flag   |  Oct 17, 2013 from Seattle, WA

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Another variable to consider is the accessibility of your money. IRA's normally have a 10% penalty associated with withdrawals made before the year you turn 59 1/2 (plus the tax you will owe). You can usually pull money directly from your retirement plan without a penalty after age 55. May not be an issue for you depending on your age, but I have seen that variable come into play before. I agree with the other comments about flexibility, cost, etc. Just really depends on what type of investor you are. Some relish the flexibility of an IRA and others are paralyzed by it. Your retirement plan is usually a simplified, scaled down version of the investment world. If it is well built and reasonable in cost, it may be just what you need.

Comment   |  Flag   |  Oct 31, 2013 from Knoxville, TN

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Toni, unless there is an investment option within your old employers 401(k) lineup that you can not find outside of the plan it is almost always in your best interest to take your retirement funds with you and roll them into your own IRA. Since your no longer there your not making any contributions and they're probably no longer providing any match. Plus as long as your funds are there your subject to whatever misfortune that might happen at the company after you leave. There's nothing worse than to see someone who has had their old 401(k) or retirement plan frozen because their old employer has had to file for chapter 11 or something. Best, Crawford.

Comment   |  Flag   |  Oct 24, 2013 from Detroit, MI

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Toni, all great answers to your question. About the only investment you may have access to within your 401(k) that you wouldn't be able to access in an IRA is a stable value fund. Depending on your thoughts on interest rates it may be a good place to park some of the 'safe' side of a portfolio allocation. Although it only provides 2-3% interest it will come without downside principal risk if interest rates increase (principal value of bonds will decline if interest rates increase). The only other reason we would recommend leaving some $$ in a 401(k) is the ability to access the money at age 55 without a penalty, as mentioned above.

Comment   |  Flag   |  Nov 01, 2013 from Uniontown, OH

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