401(k) plans are a great vehicle for employees to accumulate retirement savings. 

In addition to deferring taxes on your contributions, many employers also put some money in.

However, old 401(k) plans are not as useful once you’ve left an employer. Besides the typically limited investment options, they are not convenient to access your money in retirement.

  • Some employer plans limit how often you can take money out.  It may be quarterly, or even dictate that to access cash, you have to take ALL the money, which mandates a rollover.  
  • You also have less control in managing tax impacts, as 401(k)s have mandatory 20% federal tax withholding.  IRA tax withholding options are usually zero, or 10% – 99%.  Plan distributions are often mailed by check, versus IRA’s which can be linked to your bank account(s).

IRAs in general offer greater investment options, lower fees and greater distribution flexibility.  Brokerage IRAs allow the fullest range of investments in stocks, bonds and broad mutual fund lineups. But, not all brokerage firm IRAs are equal.  Some charge annual fees, which may be waived based on account size or investment activity, like paying stock commissions.  The most competitive firms are the large discount brokers, like Vanguard, Schwab, or Fidelity.  If you plan to invest in individual stocks or across different mutual funds, make sure that you understand the firms’ commission and trading fee schedules. 

We have a Rollover Evaluation Checklist on our website to help you evaluate this decision. 

So, enjoy today and tomorrow, and let us do the worrying!

Contact us to discuss your situation if you’re interested in our time-horizon strategies.