Should I roll my 401(k) into an IRA?


Q. I’m retired. I have an IRA and a 401(k), and the 401(k) has done really well this year. I was initially planning to roll it into the IRA, but because the performance is good, I’m hesitating. What should I do?
— Investor

A. There are several pros and cons to rolling over a 401(k) into an IRA.

But sometimes, the decision is not as simple as you may think.

Your first consideration is the management of the accounts, said Ken Van Leeuwen, a certified financial planner with Van Leeuwen & Company in Princeton.

He said in a 401(k), you are limited to a certain lineup of funds to invest in while an IRA allows the owner to have an “open architecture” when developing their investment strategy.

“Since the IRA affords so many more options — stocks, bonds, real estate, funds, etc. — many people choose to hire a professional manager to select investments and monitor the portfolio,” he said. “While the IRA gives more options, it can also be overwhelming for people to manage the account on their own.”

The next consideration is fees.

401(k)s are typically more cost-effective than IRAs, Van Leeuwen said.

He said investors in a 401(k) are usually investing in “Institutional Class Shares” or “Retirement Class Shares,” which would not be available to most IRA owners unless they meet steep minimums. Sometimes, individuals would need to invest a minimum of $500,000 in a single fund to get the same level of fee charged by the same funds that would be in the 401(k).

“Every fund has some sort of internal expenses that it charges to the investor for managing the fund,” he said. “These fees are typically lower in a 401(k) than in an IRA. In addition, if you are hiring a professional to manage the IRA, there would be an additional fee for the management of the account.”

Performance should also be a consideration, but probably not the primary consideration when comparing a 401(k) to an IRA, Van Leeuwen said.

He said performances can change year over year, and just because one account outperforms in one year, does not mean that trend will always continue.

“We would recommend looking at the funds available in the 401(k) and making sure that they are good quality investments that you feel comfortable with,” he said. “If you find that the choices are too limited, then it may be a good idea to move to an IRA as long as you understand the difference in fees between the two different types of accounts.”

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This story was originally published on Dec. 26, 2019. presents certain general financial planning principles and advice, but should never be viewed as a substitute for obtaining advice from a personal professional advisor who understands your unique individual circumstances.