Don’t let choices scare you into doing nothing. In the video Mitchell Hockenbury explains how to determine your best option for your “old” 401(k). You can roll it over to an IRA, roll it over to the new employer’s 401(k), or leave it where it is.

Mitchell C Hockenbury is a fee-only financial planner with offices in Kansas City, MO and Omaha, NE serving clients locally and across the country. He meets face-to-face with individuals, families, and small business owners in Omaha and Kansas City. He aligns himself to his clients by taking the fiduciary oath and is never paid a commission of any kind. 1440 Financial Partners provides comprehensive financial planning, investment advice, retirement planning, budget assistance, and determining the optimal time to take Social Security benefits. Mitch has a passion for taking complex financial terms and explaining them in plain English so you can organize, grow and protect your assets.

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Should You Roll Your 401k to Your New Employer’s Plan or Rollover to an IRA?

When changing jobs, one important financial consideration is what to do with your existing 401k account. You have a few options: you can leave it where it is, roll it over to your new employer’s plan, or transfer it to an IRA (Individual retirement account). Each option has its pros and cons, and the choice largely depends on your specific circumstances and financial goals.

One key factor to consider is the investment options available in each plan. Employer-sponsored plans typically have a limited menu of investment choices, whereas an IRA can provide you with a broader selection of investment options. If you are unhappy with the investment options in your current 401k, rolling it over to an IRA might be a more attractive option. With an IRA, you have the freedom to choose from a wide range of stocks, bonds, mutual funds, and other investment vehicles, allowing you to customize your portfolio to fit your risk tolerance and investment preferences.

Another aspect to consider is the fees associated with each account. 401k plans often charge administrative fees and have limited flexibility regarding expense ratios. On the other hand, IRAs generally offer more flexibility and potentially lower fees. By rolling over your 401k to an IRA, you may have the opportunity to save on fees and even negotiate better terms with your chosen custodian.

Furthermore, job changes can be an ideal time to reassess your financial goals. If you want more control over your retirement savings or plan to retire early, a rollover to an IRA might make sense. With an IRA, you can withdraw funds penalty-free before the age of 59½ under certain circumstances, such as to pay for qualified education expenses or to purchase a first home. This added flexibility can be appealing if you anticipate needing to access your retirement savings early.

However, there are also advantages to keeping your 401k with your new employer. First and foremost, it can be more convenient to have all your retirement savings in one place. Combining your 401k accounts can make it easier to monitor your investments and simplify your financial record-keeping. Additionally, some employer-sponsored plans offer unique features, such as low-cost institutional investments or loans against the account balance, which may not be available with an IRA.

Another key consideration is the level of protection offered by each account. Qualified retirement plans, including 401ks, often have strong creditor protection through the Employee Retirement Income Security Act (ERISA). On the other hand, IRAs have varying levels of protection depending on state laws. If asset protection is a concern for you, it may be wise to consult with a financial advisor or attorney to understand the specific protections afforded by each option in your state.

Ultimately, the decision to roll over your 401k to your new employer’s plan or an IRA should be based on careful consideration of your financial goals, investment preferences, fees, and legal protections. It’s important to review the specific details of each option and consult with a financial professional who can provide personalized advice based on your circumstances. By making an informed decision, you can ensure that your retirement savings continue to grow and support your future financial needs.