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Is it recommended to leave one's 401(k) with employer upon retirement or roll over to an IRA account?

I am retiring 01/31/2014 and I am 72, which means I will have to take RMD's now. Thanks,

Jan 19, 2014 by Ivory S from Baton Rouge, LA in  |  Flag
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7 votes
Peter C. Karp Level 20

Hi Ivory,

I suggest you check with your employer regarding their rules and administrative fees associated with maintaining plan assets. Depending on the specific plan, your 401(k) may include money management services and/or special investment options that cannot be rolled over into an IRA. You should also consider that rolling your assets into a qualified IRA plan often gives you access to more investment options and still allows your money the potential to grow tax-deferred. Please see a link below to access a chart from Fidelity that illustrates some advantages and disadvantages of two options. https://www.fidelity.com/viewpoints/401k-options I highly recommend that you consult with a financial professional who can help you evaluate your options based on your comprehensive financial outlook.

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Comment   |  Flag   |  Jan 23, 2014 from San Francisco, CA

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3 votes

Ivory,

I agree that most times investors can lower investment cost and increase investment options by rolling their 401(k) to an IRA. However, sometimes the 401(k) plan offers advantages over the IRA. If your Plan makes it easy to invest properly by offering professionally managed asset allocation models or other managed accounts you may want to stay in the 401(k). Another consideration are consulting, education and financial tools. Better 401(k) plans will give participants access to an advisor, a financial education program, and financial tools to help make financial decisions, all at no additional cost. If the Plan expenses are reasonable you will likely be unable to duplicate the same level of support outside the 401(k).

But, again, many plans don't yet offer these additional services to their participants. If you plan is only offering a fund line up with no real assistance to help you make the best investment decisions, or is over priced, you may as well roll to an IRA. There are no tax considerations in your decision. Moving from the 401(k) to the IRA is a tax-free event. And your annual required minimum withdrawal are the same in both type of accounts.

Hope this helps.

Comment   |  Flag   |  Jan 20, 2014 from Woodbridge, VA

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Rich Winer Level 20

Ivory, Unless you have concerns about being sued, you would probably benefit from rolling your 401K assets to an IRA. Doing so will provide you more investment options, which I feel is a HUGE benefit. It may also save you some money, if your employer spreads their plan's administrative costs among plan participants. The only major reason to consider keeping your 401K (but still taking RMDs) would be for the asset protection it provides. Assets in a qualified plan are generally protected from creditors. While IRAs provide some asset protection, it is not as strong as the protection provided qualified plans. Let me know if you have any additional questions.

Comment   |  Flag   |  Jan 19, 2014 from Woodland Hills, CA

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Hi Ivory,

I echo Rich's comments and would just add a tax consideration. If you roll your 401(k) balance to an IRA this year, you will have until April 1, 2015 to take your first Required Minimum Distribution (RMD). However, that would be 2014's RMD...you'd still have to take an RMD for 2015 itself by December 31, 2105.

Taking two RMDs in the same year can sometimes be a "double whammy" and push your taxable income higher than otherwise necessary. So if that's your case, you'll want to be sure to tackle your first RMD this year.

All the best in your retirement!

1 Comment   |  Flag   |  Jan 19, 2014 from Clackamas, OR
Larry McClanahan, CFP®, ChFC, CLU, CASL

Ivory, just a clarification to my comments above...Once you retire, the same potential RMD "double whammy" applies if you leave your funds in the 401(k) as well. Either way, you'll want to be sure you take your first RMD in a way that's not harmful to you tax-wise.

Flag |  Jan 20, 2014 near Clackamas, OR

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0 votes

There is no real benefit in leaving the funds in your 401(k) plan. Meet with an advisor and talk about how much income you need from this money and what you want it to do for you before rolling over to IRA's.

Comment   |  Flag   |  Jan 20, 2014 from Canton, GA

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