Five Reasons to Roll Over Your Retirement Plan Assets

According to the Employee Benefits Research Institute, 1 in 3 workers change jobs without taking their retirement plan assets with them. For many, this is because they may be intimidated or do not understand the transfer process.

For some, this oversight may be because they think they are too busy to mess with this process. For a few, they find their old employer’s plan better than known alternatives, including the new employer’s retirement plan.

However, as we’ll learn here, there are at least five reasons why it’s best to roll those plan assets into an Individual Retirement Account (IRA) when you change jobs.

1) Greater investment options

Rolling your retirement plan assets directly into a qualified IRA allows for more investment options. There are currently over 15,000 mutual funds and 1,000 exchange-traded funds (ETFs) to choose from through most advisers or fund supermarkets. This is much more than what is available through most retirement plans.

In addition to mutual funds and ETFs, you also have the option of investing in stocks, bonds, or marketable securities. Obviously, more options equals more options to earn money and increase your account value.

2) Best Advice

Now times are changing, but in general there are much higher paying tips for your greater number of investment options in an IRA than in a retirement plan. In today’s volatile and ever-changing world, this could mean the difference between achieving your long-term goals and objectives and coming up short.

A good example is the advisor like us, who uses sophisticated models and indicators to identify major market turns and position himself to profit. This type of advice is generally not available in the retirement plan space.

3) Greater flexibility and freedom

By rolling over your retirement plan to an IRA, you also gain greater flexibility. This flexibility allows you (or your advisor) to trade your account any day and at any time, not just during certain selected periodic reallocation windows.

This freedom becomes especially important in volatile markets where this flexibility can mean the difference between big losses or the safety of being on the sidelines.

4) Lower fees and expenses

The average 401k administration fee, according to mint.com, is 50 basis points (ie 50%). These charges represent wasted funds for which you get no benefit. The average IRA custodian, either directly or through an adviser, does not charge an annual administration fee.

In addition, most publicly available investment options carry lower expense ratios than comparable funds in a retirement plan. This is because these funds or investments within the retirement plan are for a special purpose and may not have the asset size of comparable publicly available investment options.

5) Flexible distribution arrangements

Finally, when it comes time to distribute plan assets, IRAs again have the upper hand. While the Internal Revenue Service generally requires IRA holders to wait until age 59½ to make penalty-free withdrawals, there are a variety of provisions in the code that allow penalty-free withdrawals in special circumstances. These conditions are often broader and easier to use than the hardship rules of comparable employers.

So the bottom line here is that there are a number of very compelling reasons to roll over that former employer’s retirement plan to an IRA. This is not a difficult process and it will pay dividends for years to come.