Leave in previous employer's 401k or rollover into IRA?

Question

I have money in a previous empoyer's 401K plan and I am getting good returns, but if I do decide to rollover to an IRA, what are the advantages and disadvantages of both when it comes to retiring and making withdrawals?

The expenses are acceptable and so are the returns (mutual funds). My biggest concern is the tax implications of early withdrawals if I decide to retire before 59.5. Are there advantages of one type of account over the other if I retire at 55? How can I find out if the 72(t) rule applies to my 401K?

Answer 1

Roll it over into your own IRA. First, if you use the open IRA market you have hundreds of thousands of funds to pick from your company probably has less than 50 funds to pick from. I have changed jobs 3 times and each time I call up my investment broker and roll it over into my account with him. Plus, I trust his advice (I hired him) more than my previous company's "guy." Do not withdraw it yourself, it will look like a withdraw instead of a rollover. Have a broker do it for you.

Advantages at retirement, you won't have funds scattered all over the place. The average person changes jobs/careers 6 times.

Answer 2

Depends on yoru previous employer's policy's for terminated participant accounts (they can make you pay your own way but most don't) and the funds available to you. That's something only you can tell you.

The common advice is to roll it over for increased flexibility etc etc etc..but reality is that most people aren't prepared to do that kind of work. And..it's very possible that you could already have quality funds with quality fund companies in your 401k. Blanket advice here is no good...you'll have to research your funds yourself.

Write down the ticker symbols of your 401k investements...go to yahoo and type them in in the ticker search field of yahoo finance. When the fund comes up click on it and then click on the "profile" link. Over on the right side towards the bottom you will see the expense ratios you are paying. You'll also see if there are 12b1 payments being made and you'll see if there are any loads. If your expense ratios are low (<.75%) and there are no 12b1's or loads then you look at performance. If the performance is good in comparison to the fund category then you may want to leave them....but if the expense ratios are high (>1.5%) and there are loads??? Move your money....

When retiring the advantage is better for the IRA because they are better able to handle installment payments. You don't want lumpsum distributions as that will drive your tax rate up...rather you want to take distributions annually or monthly. IRA's systems are better able to achieve that. If you want to retire early and take advantage of 72(t) which is periodic payments designed to avoid the 10% penalty then you have to go to the IRA...most 401k's do not allow them.

Every situation is different...to give you specific advice I'd need to know what your funds are, what the funds are at your current employer, whether you would like to trade in stocks (I advise against it) and how long until you plan on retiring. BTW, a good financial advisor will take your 401k's (how ever many there are) into consideration when providing you with advice.

Answer 3

You have more control over the money if you transfer it to an IRA. Many 401k plans have a waiting period or limit when you can remove money from the plan, so check with your HR and find out if that plan has one first. Also have them explain to you any early withdrawl penalty fees or taxes you might incur.

You might be able to contact the finanacial rep with the 401(k) and set up the same investments or mutual fund options in an IRA as you have with the 401(k) since you are happy with those returns.

Most IRA's and 401(k) plans require you to start taking minimum distibutions at age 70 1/2.

Answer 4

The advantage of rolling over your 401k to an IRA is control and potentially lower costs. If you own mutual funds in your 401k the withdrawal options are going to be similar whether you keep it there or roll it to an IRA. However, if your 401k is invested in an annuity contract like one sold by Principal you may also have an annuity option for withdrawals.

Before rolling your 401k over make sure there are no surrender charges. If they aren't any I would suggest setting up a Traditional IRA at Vangaurd. (www.vanguard.com) They have a great selection of low-cost index funds and actively managed funds. Even if the returns in your 401k were good, the fund management fees might be higher than you think. Over time that will cost you money! Good luck!

Answer 5

Roll it over.

If you like your investments inside your 401(k) then buy those same investments in the IRA (you can probably cherry pick some that are even better inside the IRA).

Also, that age 55 rule for 401(k)s is only applicable if you retire with that company after age 55.

Don't even get me started on the non-spousal beneficiary issues (sorry, but the pension protection act did not clear that mess up....read IRS ruling from a couple months ago).

Bottom line....roll it over and invest it wisely.

Answer 6

I'd be inclined to leave it whaer it is getting good returns, andthe rules on withdrawing from all of these plans are very specific, so you should discuss with the plan administrtator.