401(k) Rollovers: Should you rollover an old retirement account?

As a CFP? Professional I am asked quite often by people about rollovers, what they are, and if they make sense for “me”.  Before deciding to do a rollover you should first educate yourself on your options so you can make an informed decision.  Then engage a financial professional, from a firm like Intrepid Wealth Partners, to help you through the process.

Here is a clear and simple explanation of what a 401(k) rollover is and what your options are when you leave or retire from your job.  According to FINRA, people have 4 choices when they start a new job or retire:

• Leave the money in your former employer’s plan
• Roll over the money to your new employer’s plan, if the plan accepts transfers
• Roll over the money into an individual retirement account (IRA)
• Take the cash value of your account

Before elaborating on each of these, check out this IRA Rollover Chart to see what and where you can do rollovers.

Leave the money in your former employer’s plan:

When considering this option think about the performance, fees and flexibility you have with your old account.  A lot of times when you change jobs or retire there are restrictions placed on what you can and can’t do if you leave your money in the old plan.  Will you be able to make investment allocation changes?  What if you need to take some money out, how easy will it be?  Or if you pass away, how much of a hassle will it be for your beneficiaries?  Also keep in mind that if your account balance is too low you may be forced to take it out of the plan.

Roll over the money to your new employer’s plan, if the plan accepts it:

If you have started working somewhere else you might be able to roll your old account into the new one.  But, you will need to check to see if the new plan allows it.  If it does then will that money be given the same options as new contributions from your paycheck?  How many investment choices does the new plan offer?  What are the new fees?  If you did this and then decided you didn’t like the new plan would you be allowed to roll over the money again to an IRA?

Roll over the money into an individual retirement account (IRA):

Quite arguably the most popular choice for people changing jobs or retiring is to rollover their 401(k), 403(b), 457, pension, etc. to an Individual Retirement Account (IRA).  This option tends to give you the most control over investment options, fee structures, and having an advisor help you with managing your money.  If you are considering this as an option make sure to get all the details in writing first and then see if it makes sense compared to your other options.  One of the benefits of an IRA is that you can get much more personalized help from your adviser, preferably a CFP? Professional, than you can from any of the other options. 

Take the cash value of your account:

A much less popular option is to just take a lump sum distribution when you change jobs or retire.  This tends not to be a great idea; however it can make sense to do if your financial situation calls for it.  By taking a lump sum distribution you will be potentially liable for taxes on the entire sum and even an IRS 10% penalty if you are under age 59 ? .  Make sure to consult with a tax professional before electing to do this.

So, which option is best for you?  Well, as the saying goes, “it depends”.  I have purposely been vague in my explanation since each client situation is different and should be looked at in an individual manner.  No matter your situation, educate yourself first on the options and how they will impact your situation.  Once you are informed you can call the 401(k) providers or engage a professional to help you through the process.  A good place to start is to get an analysis done of your current portfolio to get a better idea of how it is invested and what the fees are, you will then have a good baseline established while doing your due diligence.

What to do next?

Make sure you understand the options from above, then consider scheduling a call, virtual or in person meeting with a firm like ours to analyze your current account to determine what fees you are currently paying, what your asset allocation is, and talk further about what your goals & objectives are for your money.

Please consider us a resource and feel free to ask any questions you may have.

Cheers,

Derek Notman

PS  Due to being in a highly regulated industry I am required to list the following disclosures:

Before rolling over the proceeds of your retirement plan to an Individual Retirement Account (IRA) or annuity, consider whether you would benefit from other possible options such as leaving the funds in your current plan or transferring them into a new employer’s plan.  Consult with each employer’s Human Resources Department to learn about important plan features and rules.  Be sure to compare the fees and expenses of each plan and investment option to those of any other investments that you are considering.  Review plan documents and the IRA agreement, as well as the prospectuses for plan investment options and any other investments that you are considering.  Your registered representative can help explain any new product being offered.  Neither Intrepid Wealth Partners, Eagle Strategies LLC nor its representatives or affiliates provide tax or legal advice.   Consult with a tax or legal advisor to discuss any questions or concerns that you have, such as the tax consequences of withdrawing funds or removing shares of an employer’s stock from a retirement plan and whether money invested in a retirement plan receives greater protection from creditors and legal judgments in your state than money invested in an IRA or annuity.  Also consider that you may be able to take taxable, but penalty-free withdrawals from an employer-sponsored retirement plan between the ages of 55 and 59.5 that you would not be able to take if you invest in an IRA or annuity.  Additionally, if you plan to work after you reach age 70.5, you may not be required to take minimum distributions from your current employer’s retirement plan but would be required to do so for funds invested in an IRA or annuity.