To Roll Over or Not to Roll Over Your Retirement Plan?

When someone leaves a job and they have a retirement plan that was offered from that employer (ex: a 401(k) or 403(b) plan), the person has 2 options:

  1. Leave the retirement funds in the employer plan (provided certain rules are met), or
  2. Roll the plan over into their own IRA or another former employer plan that is still funded

So the big question is:  when does it make sense to roll over a retirement plan?  There are a few reasons to consider rolling it over into your own IRA, and there are a few considerations if you want to keep it in the employer’s plan.  Let’s discuss the options, and see which factors come into play when deciding what is best for your situation.

Let’s tackle one of the big factors:  fees charged.

If the plan is too expensive that may be a bad sign.  Remember:  More expenses = less growth of your money over time.  Do some homework on the plan’s charges, and the expense ratios of the investment choices offered. You may have a great plan in this area, or it may be a fee disaster that you need to get out of ASAP!

Another factor:  number and quality of investment choices.

  • Does your former employer’s plan have a sufficient number of investment options to choose from?

If you don’t have between 20-30 choices to pick from, chances are the plan may not be as diverse as you may need it to be for you to reach your retirement goals with the proper allocation (everyone’s different).

  • How is the quality of those investment options?
  • Are they well-known funds that have performed well over long periods of time, or are they just average at best?
  • Are they expensive?
  • Does the expense ratio of each fund outweigh the potential gains over time?

These are all important questions that need answers as well.

If you decide to roll the money over into your own IRA, you can typically gain a greater measure of control over your investment options (why limit yourself just to funds, esp. if your former employer’s plan is lacking in that area and/or has expensive/poor-performing options?).  In an IRA at a brokerage firm, you can invest in bonds, stocks, ETFs, mutual funds, CDs, etc.  You truly have a lot more options in your own IRA.  You also may be able to lower your expenses (depending on the commissions charged, expenses, advisory fees, etc.), which can be important over time.  Why pay more than you need to pay?  No one should!

You may have access to an advisor at your former employer’s plan, or maybe you don’t – and if that’s an important factor to you, you may want to hire your own financial advisor to help you with retirement matters (a fiduciary would be best).  It’s not an easy decision, but having the right financial professional can help you to decide whether it makes sense to keep that former plan where it is, or to roll it over into an account that has more benefits for your particular situation.  If you’re not a do-it-yourselfer, make sure you hire a fiduciary to advise you on whether you should roll over that plan or stay put.  You’ll be glad that you did, and you’re welcome!

Find an experienced financial advisor who frequently deals with potential rollovers, works for an RIA firm, earns his/her money from fees (NOT commissions), believes in having an abundance of investment choices for clients, and has the heart & demeanor of a teacher, NOT a salesman, and chances are you’ve found the right financial advisor to help you prepare and plan for retirement.

To learn more about Martin Federici, view his Paladin Registry research report.  

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