3 Reasons Why Most Retirees Should Rollover Their 401(k)

3 Reasons Why Most Retirees Should Rollover Their 401(k)

I’m not saying there aren’t legitimate reasons to keep your 401(k) at your employer, but those reasons are typically unimpressive or only apply to a small percentage of people.


For instance, a 401(k) plan will allow you to make penalty-free withdrawals after you turn 55. An IRA will make you wait until 59 ½ to make penalty-free withdrawals. This might be something to consider, but only if you plan on cashing out that early. If you aren’t retiring within that time frame, you probably aren’t.


In my experience, I’ve found that rolling over your 401(k) to an Individual Retirement Account (IRA) is still the best option, and here’s why.


1. You Are in Control

When you leave your 401(k) with your employer, it is tied to that employer. Although this doesn’t mean you will lose your money if your employer goes under (that would be rare and virtually unheard of), but it could very well limit your access to your funds.


I used to believe this was a nearly impossible rarity as well, but I’ve changed my mind. Within just a 6 month period, I had two clients call in, wanting to roll over their 401(k). They heard that their previous employer was going under, and they wanted to cut ties as soon as possible. We set to work right away, but by the time the paperwork was filed, it was too late. Their 401(k) was frozen. They couldn’t move it. They couldn’t withdraw from it. They couldn’t touch it. And this didn’t just last for a couple weeks, it lasted a year or more for both of them.


Not only was this inconvenient and frustrating (it was their money, after all), but it can also be detrimental. What if it was an emergency, and they really needed that money to make ends meet? You save money in a 401(k) so that income will be there for you when you need it in retirement. When it is deemed unavailable by no fault of your own, it can be quite irritating.


With an IRA, instances like this won’t happen. Rolling over your 401(k) gives you the control. The money is in your hands, secure and swaddled in your arms.


2. You are Free

Keeping money with an employer narrows your investment options. You can only pick from the investments your company has deemed “good” for most employees.


Of course, this is not always a bad thing. It is kind of nice that someone is taking the time to explore the breadth of investment options to choose the ones that are in the best interest of the majority. And if you are happy with your portfolio, you may not feel inclined to roll it over—that’s completely fine.


But here’s the thing: what is in the best interest of the majority is not always the best interest of the individual. It is always a compromise.


An IRA, on the other hand, offers you any and all investments opportunities available—stocks, bonds, mutual funds, real estate. If you can name it, you have access to it. This gives you the freedom you need to develop a killer portfolio.


3. You Have Someone to Help You

This is not to say that you don’t have anyone to help you with a 401(k) plan, but the help usually isn’t as individualized.


If you worked at a larger company or corporation, you know what this kind of help looks like. Once a year, everyone gathers in the break room or a conference room, and a financial representative comes in to talk about 401(k) plans. No one talks to you about your specific situation. They speak mostly in generalities: “if you’re older you might want to do this. If you’re younger, you might want to do this.” Everyone in the room—whether they are 20 or 60—is getting the same spiel.  They don’t sit down with you one-on-one, and they probably aren’t qualified to do so.


But with an IRA, you can hire a financial advisor to manage your portfolio. They take an individualized approach and ensure that your investments are set to meet your goals and match your specific risk tolerance.

There are some management fees associated with doing this, so I guess that is one weakness in choosing to rollover your 401(k). But I have discovered over and over again that you get what you pay for. Your retirement income is precious; you should put it in good hands.


Looking for a Certified Financial Planner who can help you roll over your 401(k)? Call Seniormark at 937-492-8800 for a free consultation! We specialize in the transition to retirement.


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