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Why You Should Rollover Your 401(k)


Have you recently left your job? If you had a 401k with your former employer, you will want to consider rolling the money over into an Individual Retirement Account (IRA).  When you have money in a 401k, the 401k plan has rules that all participants must follow.  These rules can affect the growth of your money.  Here are four reasons why you should consider rolling over from a 401k to an IRA in order to gain more control over your investments.

1. A 401k plan will have limited investment options.  Generally a 401k has a couple dozen capital investment options.  The reason for the limited investment options is the cost of adding additional investment options to the plan. A 401k plan is a company benefit that costs the company money.  The more options a company offers in the plan, the more money it cost the company.  Within an IRA, you have unlimited investment options.  Having unlimited investment options is important for proper investment diversification.

2. In a 401k, the primary beneficiary is the spouse.  The only way to remove the spouse as the primary beneficiary is to have the spouse sign a waiver.  This is fine for most people, but if someone is going through a separation and wants to remove the spouse as beneficiary, the spouse might not be willing to do so.  Within an IRA, the IRA owner can designate whoever they want as the beneficiary.

3. There can be forced sale of investments within a 401k.  Each year a company will review the investments in the 401k plan. If the company wants to change the investment options in the plan, it will move the money from the investment they are removing from the plan and put it into another investment.  You as the owner of the 401k plan have no say in this matter.  In an IRA, you choose which investments to put the money into and no one has the authority to sell your investments.

4. 401k plans may have limited withdrawal options.  Whether you need money for an emergency or are taking required minimum distributions, the 401k plan may offer you limited options for withdrawal.  The 401k plan rules might only allow distributions at certain times of the year, may not offer electronic transfer, and may even charge you a fee for withdrawal.  IRA accounts offer you distribution options such as bank wire, electronic fund transfer, and overnight checks, making it easy for you to get your money when you need it.

IRA accounts offer you more flexibility and more control.  A rollover does not cost you anything and is a tax free transfer of assets.  If you have a 401k plan with a former employer, you should highly consider rolling the money over into an IRA. If you have questions about some potential trading solutions, you may want to contact an advisor to help you out.

This has been a guest post from James. For more tips on investing and buying things at a discount visit



My name is Derek, and I have my Bachelors Degree in Finance from Grand Valley State University. After graduation, I was not able to find a job that fully utilized my degree, but I still had a passion for Finance! So, I decided to focus my passion in the stock market. I studied Cash Flows, Balance Sheets, and Income Statements, put some money into the market and saw a good return on my investment. As satisfying as this was, I still felt that something was missing. I have a passion for Finance, but I also have a passion for people. If you have a willingness to learn, I will continue to teach.


  1. Although I’m not quite ready to do a rollover, the first reason is probably most appealing to me when the time comes. I’m not crazy about the options we have in our 401k, but they are decent and give me a tax sheltered place to stash some money until the time comes I can invest it within the IRA.

    Thanks for sharing!

  2. My wife just rolled hers over so at least we are on target with your thinking. 🙂

  3. Keep in mind you can do a rollover to an IRA at any time. It is a tax free transfer. The IRA works just like the 401k in the sense of providing you tax deferred growth. But the IRA provides many advantages that are detailed in this post.

  4. I’ve been with the same employer since graduate school. As soon as I retire, I’m rolling my 401K into an IRA along with my other accounts at Vanguard. Great advice.

  5. This article is great timing, I’ll be leaving my job today! Lower fees is probably the greatest benefit of a 401k roll-over, my (old) company’s 401k options were terrible!

  6. Great points, I would add you want to rollover your 401K to save the additional record keeping expenses. IRAs usually do not charge you for record keeping if you meet minimums.

  7. Very useful information. I am not planning on leaving for a while, but will be sure to rollover to an individual IRA when I do.

  8. The reason for the limited investment options is the cost of adding additional investment options to the plan. A 401k plan is a company benefit that costs the company money.

  9. I’ve also heard that fees are far higher in a 401k plan than many of the Traditional IRA options. Since fees directly negatively impact savings, it’s a big disadvantage. It’s one reason why I’m considering rolling over my 401k into an IRA.

  10. If you want to roll your 401K over PRIOR to leaving a company, you might have some options. Many plans have the option for an in-service distribution. This allows for you to usually roll over your contributions and any gains you have made. It usually will not allow you to roll your companies matching contributions however. I have been thinking of doing this. I need to call my plan and see if this is an option. The data I have read says that a majority of companies allow this (but do not promote it – which is understandable as they want to earn their fees). If anyone knows any more about this or has done it prior to leaving a company, please share your experiences.

    • It all depends on the fine print of your company match Brian. My last company specified that I needed to work for at least 3 years to call that match mine, so if you leave the company, you only receive the matches from 3 years prior and before. The company I work for now calls the money mine as soon as it hits the account. I could move everything out tomorrow and 100% of the money would be transferable.

  11. We have the same 3-year vesting period for the match. However, even though it is technically “mine” at the 3 year mark, it is still my understanding that if you take an in-service distribution that you can’t roll what the company matched over to an IRA. I think you can only roll over what you put in and the market gains. Now, if I leave the company at any time after that 3 years, you can clearly roll over everything into an IRA. From my understanding, this is just an in-service distribution rule that many companies and plans follow. My guess is that this at least guarantees the managing plan company makes at least a certain fee for every employee in the plan even if they roll-over part of the money to an IRA.

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