Keeping an Employer Retirement Plan or Rolling It Over

If you choose a rollover individual retirement account, you may get a number of benefits, such as lower costs, consolidation, a wider range of investment options, and tax benefits. Still, you should keep a few things in mind as you think about the choice.

Should you choose a gold IRA rollover or keep the retirement plan from your job? In this piece, we’ll walk you through important things to think about to help you make a good choice.

Which number is expected to go up over the next few years? If you’re one of the 67% of Americans whose employers offer a fixed payment retirement plan, like a 401(k), 403(b), or 457(b), you’ll probably have to make this choice more than once in your life: What should I do with the plan I already have?

When you leave from a job or are trying to decide what to do with an old account you’ve kept, you have four options:

• Give in to the plan of your new boss. If you’re moving to a new job that offers a retirement plan and lets you roll in assets you already have, it’s a good idea to find out more about it before making a decision. You might find very low fees or good investment options.
• Change to an IRA. This choice lets you keep the tax benefits of your old plan and give you access to a wider range of ways to spend your money. Also, many people find that having all of their retirement savings accounts in one place makes it easier to keep track of their money and manage it.
• Get paid. There could be big problems with this choice, so before you cash out, ask yourself if you need the money right away. You’ll probably owe income tax as soon as you take money out, and if you’re under 59 1/2, the IRS could charge you a 10% early withdrawal fee if you take money out before that age.

Remember that you won’t have to pay the 10% fine if you quit your job at age 55 or older (or 50 in some public service jobs).

• Leave your plan in place. If you’re not sure what to do, you can choose to do nothing. You can always decide to give up later and put the money into a personal savings account or another workplace plan. Just know if there are any restrictions or drawbacks to keeping your 401(k) plan. How much will you be able to talk to the strategy supervisor as a non-employee? Are there fees for maintenance? You won’t have to pay taxes on the 401(k) as long as it’s still being used, but since you’re no longer working there, you can’t add to it. Also, if your amount is less than $5,000, your company can give it away without your permission, so you should have a plan.

Prices

Make sure you know how much you’re paying in fees for your 401(k). When they first sign up, many people don’t think about this. Now is the time to do some research and find out if your money could be doing more for you. Talk to your plan manager or look at the plan documents, and make sure you compare your options based on the total costs, which include both administration and investment fees.

“If your plan was great and the costs were low, you might choose to stay,” says Hank Lobel, a senior investment expert at Vanguard. But it’s much better to make a decision based on what you know than on how you feel.

A difference of, say, half a percentage point or even 1% may not seem like much. But over many years, that difference can add up to tens of millions of dollars in possible income growth. As a private investor with an individual retirement account, you’ll pay fund costs and buy fees. 

Choices and flexibility in making financial investments

Most 401(k)s have a fairly small number of core options to choose from. Your company and the type of plan it uses decide what kinds of investments you can make. If your plan includes an investment that you can’t get through an individual retirement account but is important to your investment strategy, that could be a reason to stay put.

When you start an IRA, on the other hand, you have almost no limits on how you can put your money. This is in addition to individual stocks, certificates of deposit, and other vehicles for investments.

Lobel warns that “for some people, having even more choices can be too much.” But if you do a little research, you can find the right financial investments to help you reach your goals and give you the variety that is important for successful financial investments.

Could some advice help you?

The best way for you to move forward will depend on a number of things. Having a trusted expert talk to you about your options can help you understand them better and make you feel good about your choices. Some employer-based plans let you get advice and even pay for the cost of the advice. If that’s the case, you might want to keep that benefit and keep some or all of your money in your 401(k).

If you don’t, a trained financial advisor or robo-advisor can give you regular tips and help keep your savings on track.

Keep in mind: An expert can help you with IRAs, but may not be able to get into your 401(k) plan. Lobel says, “If you’re going to hire someone, find out if they can give you advice on your strategy.” Depending on your position, it might not be a deal-breaker, but you’ll need to know before you decide.

Tax perks

The great thing about traditional 401(k)s and Individual Retirement Accounts is that you can put off paying taxes until you retire. When you move money from a 401(k) plan to a rollover individual retirement account, you keep the benefits of the 401(k) plan and keep saving for the future while your money grows tax-free.

This requires upfront tax payment. (With a Roth IRA, you pay taxes on your contributions but not on withdrawals.) You’ll need to convert your 401(k) Roth funds into a Roth IRA to avoid taxes.

Pro tip: Transferring 401(k) savings to IRAs after paying taxes is a smart idea. Your after-tax contributions and tax-deferred income would go to Roth and standard IRAs, respectively. After-tax contributions to a Roth IRA tax-free property growth. Leave your previous 401(k) plan or roll your money into a new employer plan to defer taxes.