To Rollover My 401k to an IRA or Not to Rollover, That is the Question? by Louis Wolkenstein

Louis WolensteinThe Answer Lies in Your Objectives and Your Personal Situation. This Article Provides a Broad Overview of Some of the Concerns to Help You Make This Important Decision. It is Not Meant as a Substitute for Advice and Counsel Relevant to Your Specific Circumstances. It Also Does Not Represent a Complete Discussion of All the Concerns Involved.

Some of the Benefits of Rolling Over Your 401k Include but are Not Limited to:

  1. Control:  Your Company’s 401k Plan is Controlled by the Trustee of the Plan. The Trustee of Your 401k Plan Has a Responsibility to Maintain Your Company’s 401k in the Best Interest of Your Company’s Employees Participating in the Plan and Their Beneficiaries. Quite Often the Trustee Will Delegate Day to Day Operations of the 401k Plan to a Plan Administrator. Your 401k Plan Administrator Also has a Fiduciary Responsibility to Administer Your Company’s 401k Plan in the Best Interest of Your Company’s Employees. By Rolling Over Your 401k Plan to an IRA Account You are Not Beholden to a Trustee or Plan Administrator to Make Decisions About Your Retirement Savings. You Maintain Direct Control.

 

A 401k Rollover Will Also Give You More Control Over Your Investments. For Example: Most 401k Plans Only Allow You to Trade Your Investments Held in Your 401k at the Close of Business the Day You Buy or Sell Within Your 401k Plan. This Usually Includes Company Stock. IRA Accounts Allow You to Buy or Sell Your Investments at the Prevailing Price at the Time You Place Your Order.

You Should Note Orders to Buy or Sell Mutual Funds are Completed at the Close of Business That Day Because Mutual Fund Shares are Only Priced at the Close of Business. This is True Regardless of the Type of Account They are Held in.

In a Time of Financial Uncertainty Account Insurance has Become a Concern. It is Important to Know Your Investments are Protected and Insured in the Event of a Default by the Financial Institution Holding Them. All Firms Carry a Mandated Level of Coverage by SIPC and FDIC for Investments and Savings. How Much a Financial Institution Covers Through Private Insurance in Excess of These Limits is Determined by Each Financial Institution Individually. Rolling Over Your 401k Into an IRA Allows You to Choose the Financial Institution With the Account Insurance You Want.

  1. Investment Choice: Rolling Over Your 401k Into an IRA Will Generally Give You More Choices About the Investments You Hold in Your IRA. For Example: Most 401k Plans Offer a Slate of Mutual Funds From Which to Choose. You are Typically Limited to Choosing From Among Those Funds.

A Self-Directed IRA Will Allow You to Choose From Many Different Types of Investments. These Investments May Range From Stocks, Bonds, Mutual funds, Exchange Traded Funds, CD’s, Treasuries and Encompass the Full Spectrum of Investments.

Some 401k Plans Offer Brokerage Windows Within the 401k Plan. Meaning the Ability to Break Out a Pre-Determined Percentage of Your Entire 401k Account Into a Self-Directed Brokerage Account. Such 401k Plans are Generally Exceptions. Most Employers are Unwilling to Take on the Degree of Liability these Plans May Require of Them.

  1. Fees:Fees May be Lower or Higher If You Rollover Your 401k Plan Into an IRA. 401k Plans Have Several Layers of Expenses. From a 30,000 Foot View They Include but are Not Limited to:

A. Third Party Administration Also Known as Record Keeping:

The Role of Your Third Party Administrator is to Break Out Your Investment Balances Held in Your 401k Plan into Your 401k Account. Third Party Administrators Charge a Per Employee or Per Participant Flat Fee Subject to a Certain Minimum Fee. They May Also Charge Fees for Plan Features Such as Plan Loans. Administrators Charge Fees for Accounting for the 401k Such as Filling Form 5500. The Tax Form for the Plan. They Also do Testing for the Plan Such as Discrimination Testing. This Certifies to Regulators Your Company’s 401k Plan is Operated for the Benefit of All of the Employees Who Participate in the Plan. Not Just Executive or Key Employees.

B.  Custodial or Account Fees:

Your Company’s 401k Plan is Custodied or Housed at a Bank, Brokerage or Other Financial Institution. Fees Charged by the Custodian May Include Account Fees, Trading Fees and Operational Fees Related to the Administration of the Investments in Your Company’s Plan.

C. Investment Expenses:

The Investments Held Within Your Plan Carry Fees and Expenses. These Can Range from Mutual Fund Management Fees, Sales Charges, Marketing Charges from Mutual Funds Such as 12b1 Fees, Mutual Fund Redemption Fees and Transaction Fees. If Your Plan Allows Other Types of Investments There are Fees Associated with Those Investments.

D. Investment Education:

Your Company has a Responsibility to Provide Investment Education to You About How to Invest in Your Plan. There May be Costs Associated With Providing this Education to You.

E. Advisory Fees:

Your Company May Engage the Services of Investment Advisory Firms, Attorneys and Accountants to Advise on Matters Relating to Legal and Regulatory Aspects of Your Companies 401k Plan.

You May Also be Given the Option to Hire an Investment Advisor, Financial Advisor or Financial Planner to Personally Advise You About the Investments in Your 401k Plan.

This Gives You a Basic Outline of the Fees You May Pay for Your 401k Plan. Your Company May Pay Some or All of These Fees, or Your Company May Require You to Pay These Fees Out of Your 401k Plan Account. Your Company’s 401k Plan May Also be Provided by a Bundled Service Provider. In This Case Certain Costs and Fees May Not be Explicitly Stated. They are Included as Part of the Overall Cost of the Plan. You Should Compare the Fees Your Retirement Plan Charges to the Fees You Would Pay at Your IRA Custodian.

Account Fees Charged in Your IRA Account May be Subject to a Minimum Account Value. Additionally, The Fees You Pay for Your Investments Held in Your IRA May be Charged for Differently Than in Your 401k. In IRA Accounts Stocks Usually Carry a Commission. Purchases of Individual Bonds May be Charged for on a Principal Basis Where Their Price is Based on the Yield of the Bond. You May be Told There is No Commission Because the Charge is Subtracted from the Yield on the Bond. Bonds May Also be Charged for on an Agency Basis Where You do Pay a Commission. CD’s May be Charged for on a Principal or Agency Basis. Mutual Funds May Carry a Sales Charge.

The Type of Financial Institution You Choose to Custody Your IRA May Impact the Fees You Pay for Your IRA. Fees Vary From Financial Institution to Financial Institution. Your Choice of Brokerage Firm, Discount Brokerage, Bank, Insurance Company or Other Organization Will to a Large Degree Determine the Level of Service, Advice, Cost and Investment Choices Available to You in Your IRA. The Advent of New Retirement Plan Regulations in 2012 Requiring Your Company to Disclose Your 401k Fees to You May Make This Comparison Easier.

Some of the Benefits of Holding Your Retirement Investments in Your 401k Include but are Not Limited to:

1.  No Investment Minimums: Specific Investments Such as Mutual Funds May Require a Minimum Investment. 401k Plans Generally Waive the Minimum Investment and Allow Allocations of Your 401k Account Contributions from Dollar One.

2.  Asset Protection: 401k Plans are Held Under the Auspices of a Pension Trust Account. Generally, Assets Held In Pension Trust Accounts Hold a Protected Status and Can be More Difficult for a Creditor to Lay Claim to. Assets Held in IRA Accounts Generally are Not Afforded the Same Degree of Protection.

3.  Pre-Tax Contributions: Contributions Made to a 401k Account Are Made Pre–Tax for Federal Income Tax Purposes.

 

In the Process of Making Your Decision About Rolling Over Your 401k You Should Pay Particular Attention to the Purpose for Which You Are Rolling Over. For Example: Are You Rolling Over to a Roth IRA? Converting to a Roth May Carry Tax Consequences. Is Your Goal to Make a Charitable Contribution? Is Your Rollover a Lump Sum Distribution Funding Your Retirement? The Rules Around  Rollovers Can Get Complex You May Want to Consult Your Attorney, Accountant and Investment Advisor.

Additionally, Assets in Individual Retirement Accounts and 401k Plans Flow to Your Heirs by Beneficiary Designation. Always Remember to Make These Designations. If You Find You are a Beneficiary of 401k Plan Assets You May Want to Consider an Inherited IRA Account.

For Further Questions or Concerns Contact The Investment Advisor, Your Investment or Financial Advisor, Your Attorney and Accountant.

The Investment Advisor Helps Individuals Manage Assets Held in Their 401k Plan and in Their IRA Accounts.

For a Free review of Your Retirement Plan, IRA and Investment Portfolio: Contact the Investment Advisor by Phone at (877)414-9021 or (570)815-0770.

Or on the Request Consultation Page on the Website of The Investment Advisor at http://www.theinvestmentadvisor.net/request-consultation.html

 

Or by Email at lwolkenstein@theinvestmentadvisor.net

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