It’s really simple to roll over a 401k, and if you’ve “separated from service” (lost your job or quit), you should do it. Roll your 401k to a self-directed IRA as soon as you can. Here are the main benefits:
By rolling the money over, you can invest your retirement money just about any way you like. If you roll the assets to a company like TD Ameritrade or Schwab, you’ll have thousands of investment choices. Even if you roll the money to a mutual fund company like Vanguard, you’ll have hundreds of funds to choose from.
When you evaluate mutual funds, you have to consider cost. The funds inside your 401k charge you plenty – even if they don’t tell you how much that is. In fact, it’s almost impossible to know how much the 401k funds charge. If you roll the money over, you can select funds knowing what they charge you.
When is the last time you checked your IRA beneficiaries? Are they the right ones? This is a critical issue. But many 401k plans restrict beneficiary planning. You select one person, and that’s it. And by the way, by rolling your IRA over, if nothing else, you’ll force yourself to revisit the beneficiary issue. Nice.
4. It’s harder to make really terrible investments mistakes.
I’m sure with the right motivation and effort you could lose everything by having a self-directed IRA, but it’s harder to do. With your 401k you might be tempted (or strongly “encouraged”) to put a big chunk of the assets into company stock. While that could work out for you, it could also end up being a disaster. Can you say E N R O N ? There is also the issue of employer fraud you have to worry about if you keep the money at your previous employer.
Are there reasons to leave your 401k as is after you leave your job? Sure. They just don’t happen to be good reasons.
Now, the question of where to roll your 401k comes up, and it’s a rather simple question to answer. You want to choose a good IRA custodian that is inexpensive and has a wide selection of investment choices.
Don’t roll your 401k to an insurance company or annuity. Your investment choices there are lousy and expensive. Worse, you’ll be tied to the investments for a very long time.
Also, don’t roll your 401k to a broker. These people work on commissions. If you need ongoing, objective financial advice, you’re not likely to find it there.
You could roll the money to a mutual fund – that would certainly be better than the two choices above, but still limited. You can only use the funds that the mutual fund company sponsors.
Your best IRA investment choices will be with a company like TD Ameritrade, Fidelity or Schwab. These are independent firms that offer a very broad investment menu and are pretty inexpensive too. If you want to make your own choices, you can use these firms.