To Rollover or Not to Rollover Your 401(k)

February 6, 2016 | By Steven DiGregorio

When leaving a job, take some time to evaluate the benefits of a 401(k) rollover.  The reasoning has to be sound, so let’s look at a few things to consider when evaluating the merits of rolling over 401(k) assets into an IRA.

1. Consolidation – Moving all of your 401(k) accounts at different former employers to one IRA account eliminates administrative difficulties. If you move, you only need to change address with one provider instead of several. You only have to remember one website login and password to view your account. Having the assets at one provider makes it easier to build a diversified portfolio. When the assets are spread around in several 401(k) plans, it becomes significantly more challenging to monitor your portfolio and make sure you are not too concentrated in one asset class. Some clients find by having the all of their retirement assets in one location they take the account more seriously. They are more diligent in monitoring the account and the underlying investments. They are faster to make changes when things going well. Lastly, most providers give customers a better deal for having more assets in their accounts. The better deal could come from lower fees, lower commission rates or additional free services.

2. 401(k) plan expenses – In addition to the fees charged by the underlying funds in a 401(k) plan, there is usually an administrative fee charged as a percent of assets. It is even worse because both sets of fees are hidden to the investor. By moving the 401(k) balance into an IRA, you will have transparency on the fees you pay. If you want to remain in mutual funds, you’ll be able to assemble a portfolio of funds with reasonable expenses.

3. Broad Investment Choices – A Rollover IRA will have near unlimited investment choices. On the other hand, a 401(k) plan will have limited options. Most have between 10 to 15 investment choices. Even a quality 401(k) plan at can have only about 30 investment options.  Many firms offering IRAs have access to virtually every mutual and stock. There is no reason to limit your choices. One could argue that only a high quality investment can get on a 401(k) platform, but in reality, you could be surprised to learn why those particular investment options are on a company’s 401(k) platform. Maybe someone on the investment committee has an unconscious affinity for particular brand of mutual funds or maybe the investment option won a place on the platform after good (but unsustainable) streak in the market. More options are better, and Rollover IRAs have many more options than 401(k) plans.

4. Roth IRA Options – The tax-free growth of a Roth IRA can mean enormous benefits in retirement.  But in order to convert to a Roth IRA, you have to first rollover the 401(k) to an IRA.  The advantages of a Roth IRA will provide additional benefits such as tax-free withdrawals, no minimum distributions at age 70 ½, and no penalties for certain early withdrawals.

5. Investment Choices – By leaving your money in a 401(k) Plan, your investment choices may become stale. 401(k) plans change their investment options from time to time. Often, the 401(k) Plan will replace an existing fund with a similar fund and shift all of the 401(k) Plan participants’ investments to the new fund. Other times, a 401(k) plan may eliminate an investment option and there is no replacement or the replacement is different enough that the 401(k) Plan’s Trustees don’t feel comfortable shifting participants from the old fund to the new fund. In these instances, the 401(k) Plan will send you a letter telling you about the shift and asking you what to do. If they are not able to find you or you do not respond, your money is liquidated from the old fund and investment into the 401(k) Plan’s money market option, which is not a healthy long-term investment.

6. Tracking Your Investments – 401(k) Plans often invest in a separate account that clones an existing mutual fund. The separate account is traded alongside the mutual fund, but it may have a different fee structure. This makes tracking the underlying investments in a 401(k) plan difficult if not impossible.

7. Estate Planning – A Rollover IRA is better from an estate planning view. If you die before taking minimum distributions at 70 1/2, your named non-spousal heirs have the option to take your IRA assets and move them into IRA accounts under their name and extent the minimum distributions to their life expectancy. This gives your heirs the power of tax deferral over their lifetimes. There is not such opportunity with a 401(k) account held at the time of your death.

About Compass Asset Management Group
Our boutique-style firm has an investment philosophy is both prudent and value driven. We combine research from the largest firms on Wall Street with three decades of market experience to provide strategic, tactical and dynamic investment management. Compass Asset Management Group, LLC delivers personalized financial planning, estate planning and investment management advice in a private setting with a high degree of sensitivity to your concerns and objectives. Our goal is to exceed yours expectations by listening closely, understanding deeply and communicating well through frequent, personal consultations entirely focused on your financial goals.

Make the right choice with your financial future. Consult Compass Asset Management Group for advice & guidance that will change your life.

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Please note that the content of this blog does not constitute tax advice and is only intended for the educational purpose of the reader.  Please consult your tax advisor for specifics regarding your circumstances.

For more information contact us at 845.563.0537 or

Steven M DiGregorio is President of Compass Asset Management Group, LLC and an Investment Advisor Representative with Spire Wealth Management, LLC a Federally Registered Investment Advisory Firm.  Securities offered through an affiliated company Spire Securities, LLC a Registered Broker/Dealer and member FINRA/SIPC.




Tags: 401(k), 403(b), 457, bonds, financial planning, investing, IRA, mutual funds, pension, retirement, retirement plan, Retirement Planning, Rollover, rollover IRA, ROTH, stocks

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STEVEN M DIGREGORIO is President of Compass Asset Management Group, LLC and an Investment Advisor Representative with Spire Wealth Management, LLC.
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