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401(k) Plans: Stay or Go?

A decision facing many 401(k) participants as they near retirement is whether to leave their deferred contributions in the employer plan or rollover to their own IRA. With all the attention given the various fiduciary rules, this issue has become even more important. Not surprisingly, there are good arguments supporting a decision going either way as well as counter-arguments against each approach.
Some employer plans encourage retired or departed employees to take their money with them and for the smallest accounts will insist. However, most plans seem to welcome the former employee leaving the money in the plan. If that is the case, the next question should be about the investment choices in the employer plan. The broader the choices, the better, but it is important to know that an IRA will almost always have more choices than an employer plan, including certain investments no plan will be able to allow.
Another important factor is the costs related to the investment choices in the plan and in the IRA. Low cost choices can be very important to long term performance and should be considered. An advantage the employer plan carries is the absence of an adviser fee while IRAs, though sometimes self-directed, will be subject to the fees of an investment adviser if the participant employs one. Note that some financial/investment advisers charge a fee for planning for non-managed investments such as a 401(k) which means that the move to an IRA may not be so different after all.
As you can see, there are several different considerations to weigh if you are retiring (or separating) from an employer and participants should feel free to choose whichever option appears to give them the best situation. Ask your financial adviser directly about the costs and options and why one choice is better than another. If that adviser can’t reasonably explain why you should move to an IRA, don’t.


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