Is A 401k Rollover Worth It? Pros & Cons

So you’ve recently left your job and wondering what to do with the money you’ve been saving while you were working for your company. Well, now that you have left, the rules for your retirement plan have changed substantially. Here are the pros and the cons of keeping money in your 401k plan as opposed to doing a 401k rollover into an IRA:

The Pros About a 401k Rollover

– Usually as long as you have over $5,000 in your plan you will not be forced out and can keep you assets in your former employers plan.

– You can make fund transfers at any time for little to no cost between the investment options.

The Cons About a 401k Rollover

– You cannot make a 401k contribution to this plan anymore and cannot take any loans from the plan.

– You are stuck with the investments the plan offers.

– The plan can change it’s rules, investment options, and even the investment company they work with, which means it’s ever changing and you are the mercy of your former company’s decisions.

– You can take partial withdrawals, however the IRS mandates at least 20% federal tax withholding on any 401k withdrawals.

– Some plans start charging fees once you leave the plan.

– The 401k plan is fully self directed meaning that you get no advice on where to move your money and nobody is legally able to give you specific 401k investment advice.

– The 401k is not FDIC insured. If you do not know enough about how this effects your retirement assets do some research on FDIC vs. SIPC coverage and how it effects investments. I will also make a post later regarding this.

You may still have further questions about a 401k rollover before you make a decision. Our article “401k After Changing or Losing Jobs – What Now?” , goes into detail about the fees and penalties associated with 401k withdrawals.

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