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The Benefits of 401K Rollovers

The Benefits of 401K Rollovers

February 02, 2024

Changing jobs? No problem! But what about your precious 401k? Leaving it behind can be tempting, but hold on! Rolling it over to an IRA might be the smartest move for your future. Here's why:

Professional Money Management: ‍ Often times when I meet a new client I learn that they have one, two or even three old 401k's from previous employers. They occasionally check the balances when they receive statements but for the most part, the 401k's are just sitting there completely unmanaged and without any guidance. In many cases, these clients are taking too much or not enough risk for their risk profile. In some cases that can lead to potentially large losses or missing out on potential gains. While you can roll over your 401k to an IRA without a financial advisor, a financial advisor can help create a portfolio that not only fits your risk tolerance, but also one that is designed to help you achieve your goals. 

Investment Freedom:  Imagine a buffet of delicious investment options, compared to the limited menu of your old 401k. Rolling over opens the door to a wider range of stocks, bonds, mutual funds, and even alternative assets, potentially boosting your returns and greater diversification. This is becoming even more of an issue as we are seeing many 401k plans just offering age-based or target date funds. These funds essentially give complete control of your money to the fund manager. Another issue I have with aged based funds is that they are designed so that you pick a fund based on the date you think you will retire. That's not looking at the big picture. In my opinion, you really need to be building a portfolio based around your life expectancy, not when you plan to retire. Running out of money after retirement should not be the goal of working all of those years to build your nest egg.  

Cost Consciousness:  Ditch the hidden fees! Depending on the investments chosen in traditional IRAs, many often boast lower expense ratios than employer-sponsored plans, meaning more money stays in your account to grow. Research and compare before choosing your new home for your retirement savings. Our fees are fully transparent so you know exactly what you're paying. By the way, financial advisors are required to show you the fees you are currently paying in comparison to the fees you would be paying by rolling it over. This will help you make a much more informed decision. 

Consolidation is Key: ‍ Juggling multiple retirement accounts can be a headache. Rolling over simplifies your financial life, giving you a clear picture of your overall nest egg and simplifying management.

Roth Conversion Potential:  Ever dreamed of tax-free retirement withdrawals? With a rollover, you might be eligible to convert your traditional 401k to a Roth IRA. While you'll pay taxes upfront, future withdrawals in retirement are completely tax-free, potentially saving you big bucks down the line.

Early Access (For Emergencies):  Life throws curveballs. While not ideal, having the option to withdraw contributions (not earnings) penalty-free from an IRA for qualified emergencies like medical bills or a first-time home purchase can offer peace of mind.

Estate Planning Perks:  Want to leave a legacy? IRAs offer greater flexibility in naming beneficiaries compared to 401ks, potentially simplifying the inheritance process for your loved ones.

Remember: Roll overs aren't always the answer. Consider factors like your age, income, investment goals, and fees associated with both your current 401k and potential IRA options. Consulting a financial advisor can help you make the best decision for your unique situation.

So, don't let your hard-earned retirement savings get stuck in a bygone era. Consider rolling over your 401k and unlock a world of potential for a brighter financial future!

P.S. Share this post with your friends or colleagues who might be facing a similar crossroads!