OPINION: Rolling over the money in your old 401(k) to your own IRA is better than to your new 401(k). Here’s why, certified financial planner Christie Whitney writes.
The Great Resignation, the Big Quit, the Extraordinary Exodus — whatever you want to call it, 4.5 million Americans voluntarily left their jobs this year, according to current government data, while job openings hover around 10.6 million.
There’s already tens of millions of these “lost” accounts floating around in the 401 industry. In the rush to change employers, move, get kids settled in new schools, reestablish career prospects and so on, retirement planning can end up at the bottom of the to-do list.So millions of old plans languish, costing their owners tens of billions in fees per year.
Fees aside, you might think that your old 401 is just fine on autopilot. It almost certainly is not. Investments that made sense in your 20s or early 30s are not necessarily a good fit in your 40s and older. It’s better to own hundreds or thousands of stocks, preferably via low-cost index funds. These funds cost a fraction of the typical stock mutual fund fee and provide instant, real diversification.
In a new, personal IRA, you’ll have more and better investment choices, more visibility on performance, and you’ll be able to lower your investment costs. If you have funds at several previous employers, an IRA means you can consolidate your investments into a single account under your control. Make sure you request a rollover, not a distribution. If you simply take money out of your 401 plan you will be liable for taxes and, possibly, penalties for taking an early withdrawal.
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