401(k) Rollovers- When and Why to Rollover, How and Where to Rollover to

Your 401(k) can be a great way to accumulate funds for retirement, and the opportunity to rollover into an IRA can be a great way to keep your retirement money working for you.

Speak with us today for help considering a 401(k) rollover

When Should I Consider a 401(k) Rollover?

There are a few situations where you may consider rolling your 401(k) over into an IRA.  Two of these situations are the most common, so we’ll look at those first:

  1. When Retiring, you will probably roll out your 401(k).  When most people retire they take their 401(k) with them somewhere to carry out retirement plans they have worked out personally or with their Financial Advisor.
  2. You may want to rollover your 401(k) when changing jobs.  This is the second most common time because when you change jobs you will most likely be left with reduced access to your 401(k) and will want to carry the account somewhere that will allow you to easily monitor it and adjust your asset allocation.  For more tips for when you change jobs, check out this post on job transitions
  3. In-Service Rollover while still working with your employer.  You will have to check your plan documents and/or consult your 401(k) plan administrator to see if it is allowed, but many plans will allow you to roll out part of your 401(k) while you are still with the company.

Why Should I Consider a 401(k) Rollover?

There are a few reasons for moving your money and rolling your 401k over into an IRA.  These reasons don’t apply to every situation, but we have found them to be common factors.

  1. Cost.  In a 401(k or 403(b) plan you may have a variety of fees contributing to the cost of your plan.  These shouldn’t stop you from participating and taking advantage of the tax benefits, but when you have the opportunity to move your money to a lower cost account such as a Rollover IRA it can be very advantageous.
  2. Investment choices.  Choices in a 401(k) or 403(b) are often limited to mutual funds or annuities.  While these can be good ways of building up savings and diversifying, opening up more options in an IRA can help to diversify further and reduce costs at the same time.  In addition it opens up the possibilities for strategies involving stocks, options, ETFs, and more.  Working with a financial advisor to develop some strategies for your Rollover IRA can help you get comfortable with the different options and possible advantages.
  3. Access to your account.  Many 401(k) and 403(b) plans are accessed through the employers intranet or through a payroll provider portal like ADP.  When you leave the company, you lose access to these systems and thus lose the ability to monitor and adjust your 401(k) as you see fit.  If access and communication with your retirement plan advisor are important to you, you may want to consider a 401(k) rollover to an IRA with an advisor you have easy access to.

How and Where to Rollover a 401(k)?

We have combined these two in this guide because the “how to” rollover your 401(k) will depend largely on the “where to” rollover your 401(k).  We’ll start with the “where”.

  1. It is completely up to you.  This is the best part!  You have absolute freedom as to what company you choose when you roll over your retirement accounts.  You don’t have to use the company that set up the employer’s plan, and you don’t have to use the guy you’re not sure about.  You can find a money manager that has your best interests in mind and is dedicated to the job of monitoring the risk in your IRA.  We recommend that you consider an independent advisor and look for one you get a long with, who has experience and a defined plan for managing your money.  Alternatively you can open a discount brokerage account if you want to pick your own investments and perform the monitoring and re-balancing yourself.  It’s all up to you.
  2. How.  As we mentioned, this will depend a lot on what brokerage or advisory company you use.   Usually it requires a meeting or two (or three) to get a good feel for your financial situation and what you have in mind for the retirement account and any other financial initiatives. Once you feel that the Advisor or brokerage company is a fit for you, it usually requires filling out a few forms and possibly a questionnaire.  If  you’re working with an advisor, you will want to do your research on him/her before this point to inform yourself as to their history and experience. Check out our article on choosing a financial advisor

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