One of the most common questions I get from people when they find out that I like personal finance is “What should I do with my 401k/403b/457 plan from my old job?” My own 401k rollover decision process was one of my first blogging topics. I eventually settled on rolling my 401(k) balance into an IRA at Vanguard, although I have since changed my specific investment choices. This time around, my wife has the ex-401k that needs to be addressed, and so I think it’s a good time to do a more in-depth series on 401k (and similar) rollovers.
To start off, should you really move your retirement plan somewhere else? I think you’ll see that in most cases the answer is yes, but there are some possible benefits to staying put. Here are a few:
Special investment options
While many 401(k) plans offer very limited or expensive options, some of them actually offer investments that you may not be able to get anywhere else. For example, your plan may give you access to a mutual fund that is normally closed to new investors, a special institutional or pooled fund with super-low expenses, or the ability to buy your company stock at discounted prices.
Lower minimum balances or fees
One benefit of many 401(k) is that there are often no minimum balance requirements to invest in an offered fund. For example, my wife might have as little as $10 in a Fidelity Spartan index fund with a tiny 0.10% annual expense ratio while it is in her 401(k), but in an IRA the minimum would be $10,000. At the same time, the account may continue to waive all maintenance fees even after you leave (check with your administrator.) Depending on where you move your money to, other brokers may charge fees for low balances.
Together, it may be a good idea to keep smaller portfolios in such a 401k until the balance grows enough to consolidate with other investments.
Ability to take out loans
Although not necessarily a good idea, many plans do offer the option of being able to borrow money temporarily from your 401(k). This option is not available in an IRA.
I probably missed something, so if you have some more reasons not to move your retirement plan into an IRA, please share in the comments below.