America’s Retirement Asset Distribution Professional, Andrei Hall explains why Employees must understand the myriad of issues inherent in the decision of whether to roll over a plan account to an IRA.
Andrei S. Hall, CFP, CPRC
PRESIDENT, HALL WEALTH MANAGEMENT GROUP
Andrei.Hall@lpl.com
949-222-6401
HWMG-LPL.COM
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HWMG – Employer Plan to IRA Rollovers – Week 3 – Why it could be a Good or Bad Idea for You

retirement planning is essential for a comfortable and stress-free retirement. As part of this process, many people consider rolling over their employer-sponsored retirement plans into individual retirement accounts (IRAs) when leaving their jobs. There are several reasons why this could be a good or bad idea for you, depending on your individual circumstances.

Potential Benefits of Rolling Over Employer Plans to an IRA

1. More Investment Options

IRAs generally offer a more extensive range of investment options than employer-sponsored retirement plans. These options allow for greater diversification and customization of your retirement portfolio, based on your risk tolerance and investment goals.

2. Lower Fees

IRAs often come with lower fees than employer-sponsored plans. The fees attached to your investment choices are one of the most significant factors that can impact your investment returns. Taking steps to reduce these fees will help you improve the long-term performance of your retirement portfolio.

3. Greater Flexibility

IRAs offer more flexibility than employer-sponsored plans. This flexibility allows you to make changes to your investments as per your risk tolerance and investment objectives. Furthermore, IRAs provide more control over key financial decisions, such as when to start withdrawals and how much to withdraw.

The Potential Risks of Rolling Over Employer Plans to an IRA

1. Early Withdrawal Penalties

If you withdraw money from your IRA before age 59½, you may be subject to early withdrawal penalties. Unlike employer-sponsored plans, early withdrawals from IRAs are subject to an additional 10% tax on top of the regular income tax you will need to pay on the withdrawn amount.

2. No Creditor Protection

Employer-sponsored retirement plans such as 401(k)s provide creditor protection for your retirement assets. However, IRAs are not protected from creditors under federal law. In case of bankruptcy, your IRA funds may be subject to claims from your creditors.

3. No Required Minimum Distributions

Employer-sponsored retirement plans such as 401(k)s require minimum distributions annually once you reach age 72. However, in the case of IRAs, there is no requirement to take minimum distributions. This lack of requirement may lead to less income in retirement, as you may not take the necessary minimum distributions from your IRA account to meet your retirement income needs.

Conclusion

As you can see, there are various reasons why rolling over your employer-sponsored retirement plan to an IRA could be a good or bad idea, depending on your individual circumstances. Ultimately, choosing a strategy for your retirement should depend on your individual financial goals and risk tolerance. Therefore, it is essential to consult with a financial advisor who can help you evaluate your options and make the right decision.