We often get questions on the wisdom of rolling over from a 401k. Here’s a deep dive on the subject.
When people change jobs or retire, one of the biggest challenges is deciding if it’s smart to rollover at 401(k)-type plan to an IRA. The process is fast and easy. Making the best choice can be very complex.
Get it right, and your retirement can be very bright indeed.
But make the wrong choice, and you face some big risks. These include running out of money, not being able to afford health care, and leaving a surviving spouse below the poverty line.
While 401(k)s are very common, the important decision applies even if your employer retirement plan goes by a different name. These include 403bs, TSPs, TSAs, FRSs, DROPs, 457s, and even pension or cash balance plans.
The best decision on your 401(k) rollover or other plan may not be obvious, but could not be more important. It’s a real fork in the road.
Consider:
Getting the 401k IRA choice right can lead to a luxurious retirement. Getting it wrong can lead to hard choices and misery.
Using an advisor to guide the choice can be a great help, but be careful. Many advisors may offer to transfer a 401(k) to IRA or give other 401(k) advice, but may not be fiduciaries required to act in your best interest. Others may not have enough training to help you make the best decisions for a secure and comfortable retirement.
Finding an objective and qualified advisor can be hard, but worth it.
Even if you think you want professional guidance, moving money from your 401(k) to IRA may not be the best advice. Besides simply “moving 401(k) to IRA” you may want to consider options, such as:
- a direct rollover 401(k) to a new employer’s (401(k) and getting advice for it there
- not transferring 401k to IRA but leaving the old 401(k) and getting advice for it there
In-the-know advisors like Camarda can actually manage your 401(k) right in the old plan, without needing to do a rollover. Ditto for 403(b), FRS, or other employer retirement plans. This can avoid the need for rolling over, transferring, or moving money from your new or old 401(k) to an IRA.
This can be done with virtually any plan, but it takes some research to figure it out. Many advisors are not set up to do this, but Camarda is.
Is a 401k IRA rollover the best thing for you? Should you leave it in the old plan? Should you do a rollover to a new plan? Take our quick assessment to find out! Just get with your Personal Wealth Advisor to get this done.
401k Rollover to IRA… Should you transfer your 401K, FRS, 403b, DROP, TSP, or 457? Pros and Cons
Roll 401k to IRA Decision Guide
Deciding if and how to roll your 401k is a very important decision. There are many factors to consider, which are summarized below.
Reasons to Consider Rollover, Transfer or Move Your 401k or Other Plan
- You are unhappy with your investment performance
- Poor advice, high costs, and limited choices can stall profits
- You may make more with the right rollover choice
- You want the option to convert to a tax-free ROTH and your plan does not permit this
- You want more or better investment choices
- Many plans limit your investment options
- This can restrict diversification, increase risk, and hinder returns
- The right rollover can give you better investment choices
- You want access to better professional advice in your best interest
- Most plans don’t offer fiduciary investment advice or financial planning
- The right fiduciary advisor can help make better choices to grow wealth
- Your plan has high investment expenses that are not obvious to you
- In many cases, rolling a 401k to IRA can actually reduce costs or produce higher levels of financial planning advice for similar cost
- 401k-type plans are controlled by your ex-employer not you
- Transferring your 401k to IRA can offer more control and access
- You want to consolidate accounts for simplicity and coordinated management
- 401ks can be cumbersome even before you leave, and worse after
- The right rollover can simplify your life
Reasons to Consider NOT doing a Rollover, Transfer or Moving Your 401k or Other Plan
- You are sure you have a truly inexpensive plan with broad investment options
- You already get ongoing fiduciary financial planning, update calls, and custom advice
- You have access to a well-educated team of financial and investment advisors
- You get broad advice on insurance, estate planning, education planning, taxes, etc.
- Loans remain available after termination and this matters in your situation
Besides moving your 401k to IRA or other direct rollover or transfer o 401k, what are my other retirement plan options?
Here’s an overview of common choices besides a rollover or transfer of your 401k. It also applies to rollover of 403b, FRS, TSP, 457, DROP, and other employer retirement plans.
- Keep assets in the current plan after termination if the plan allows this
- Roll assets into a new employer’s plan
- Take full taxable distribution of assets from plan, penalties may apply
Should You Use a Financial Advisor to Help with the 401k Rollover to IRA Decision?
Finding a good, objective financial advisor can help you make better decisions and improve your wealth outcomes.
All advisors are not created equal, so be careful.
Many advisors may offer to transfer a 401(k) to IRA or give other 401(k) advice, but often are not fiduciaries required to act in your best interest.
Others may not have enough training or resources to help you best.
Quality advice can be important to help you make the best decisions for a secure and comfortable retirement.
For instance, doing an indirect rollover instead of a direct transfer – a common mistake – can cost thousands in needless tax. It can also create a cash crunch when you can afford it least. Unsophisticated advisors can inadvertently trigger problems like this.
Some may offer only a robo advisor experience. This may not make for one of the best places to rollover your 401k. Many don’t offer hands-on managed account. This can leave you with only a self-directed account or self-directed IRA.
Remember – getting the 401k IRA choice right can lead to a luxurious retirement. Getting it wrong can lead to hard choices and even misery.
A skilled, objective advisor can speed you there, but the wrong advisor can set you back a lot.
Tips on Selecting an Advisor to Help with the 401k Rollover to IRA Decision
Here are some boxes to check in shopping for an exceptional advisor:
- Are they a full-time fiduciary required to always put your interests first?
- Pure fee-only/no commission fiduciary advisors can be hard to find
- Most advisors are commission based or fee + commission (“fee-based”). This can be dangerous but hard to spot.
- How much training do they have?
- Basic investment licenses can be acquired in only weeks with no background
- Even financial planning designations like CFP don’t mean investment expert
- Knowledge is power – look for advanced finance or financial planning degrees
- Look for a CFA® for deep investments expertise
- For tax expertise, look for the IRS-admitted credentials of CPA or EA
- How much experience and job stability do they have?
- Look for someone who’s been through multiple bear markets over 15+ years
- Job-hopping can indicate a compensation focus or other flags
- Advisors can get bonuses by moving clients to new employers
- Bonuses are often tied to commissions generated from moved clients
- Will they be around for the long term?
- What’s their business model and succession plan?
- Could they sell out, changing everything, when you’re in retirement?
- What’s their bandwidth of expertise? If desired make sure they are expert in:
- Investments
- Detailed retirement income modeling and stress testing
- Can you retire now and live how you want?
- What expenses will you have through the stages of retirement?
- What is the probability confidence level you won’t run out of money?
- Estate and trust planning
- Tax preparation & control
- Non-commission insurance advice
- Asset protection planning
- Protection from financial predators and losing assets to lawsuits
- Kids’ inheritance divorce and other protection
- Is there evidence of third-party recognition, honors, or awards?
- Such recognition can indicate “in the know” institutions have scored the advisor exceptional
- In a world were all advisors can look similar to consumers, recognition can provide important information to guide more informed decisions
Why to Consider Camarda Weatlh to Help with the 401k Rollover to IRA Decision
In a field where true expertise and professionalism can be very hard to come by, Camarda has invested decades in education and expertise. We’ve done this for one reason – to be a better resource for investors.
- Full time fee-only fiduciaries. We accept no commissions, kickbacks, or other forms of hidden compensation that can distort our advice. We are committed to putting your best interests’ firsts, always.
- Our deep training and decades of experience can make it simple and easy to get the results you want for your retirement.
- Our team has completed the CFP®, ChFC®, & CLU® financial planning designations.
- Our team has the “gold standard” CFA®.
- Our team is lead by an award-winning PhD in Financial and Retirement Planning.
- Our TaxMaster™ affiliate includes a team of attorneys and CPAs for tax, asset protection, and trust/estate planning.
- Fiduciary CFA®-grade advice is hard enough to find, but finding this plus expertise in tax, estate, retirement and asset protection can be nearly impossible.
- Our firm is not and will not be for sale. We take our commitment to be there for our clients – and their children and grandchildren – very seriously.
- We have been nationally recognized for many years, and repeatedly noted in Barron’s, Forbes, the Wall Street Journal, and elsewhere.
Our exclusive WealthMax™ 401k rollover system was designed by our own award-winning PhD in Financial and Retirement Planning. WealthMax™ can bring you keen insight into your best path on 401k rollover, 403b transfer, and other IRA rollover decisions. For more detailed information on this topic from the author, request it here.