Retirement Accounts – Should I or Should I Not Roll-over?
As physicians change employers, they face the “roll-over” decision – to move their retirement accounts or leave them. Here are some key considerations when facing that choice.
When you change jobs, everything you need to take with you can usually be packed neatly into a couple boxes for your move – everything except your employer-sponsored retirement plan. Of course, you will likely enroll in your new employer’s retirement plan, but the decision as to what to do with your existing 401k plan may not be all that clear. As with anyone who leaves an employer-sponsored retirement plan, you have four options to consider:
- Keep the money with your former employer’s 401k
- Execute a rollover into an Individual Retirement Account (IRA)
- Roll your money into your new employer’s retirement plan if it’s allowed
- Cash out your 401k plan by withdrawing all your money (usually not recommended)
Your best course of action depends on a number of factors that should be considered in light of your situation, your attitude about managing your retirement plans, and the specific plan options available to you.
Key Factors in Determining Whether to Rollover or not
- Plan Fees – Employer-sponsored plan fees should be compared with the costs associated with investing in an IRA. Large employers are sometimes able to use their buying-power to negotiate low fees, but they may also charge multiple fees that differ from fees they charge current employees, such as administrative and investment management fees, which can add up. IRAs established through a mutual fund will incur the sales charges associated with the funds offered. It’s possible to establish a self-directed IRA through an online broker with a minimal annual fee using low-load or no-load mutual funds or low cost exchange-traded funds.
- Investment Options – If your current plan offers a wide range of investment options enabling you to achieve optimum diversification among several different asset classes, you might be better off where you are. If the plan’s investment options are limited to just a few types of stock and bond funds, you may want to consider seeking greater diversification in a self-directed IRA.
Consider keeping your money where it is if…
After comparing plan fees and options – with your new employer’s plan as well as with IRAs – you’ve determined your current plan offers the best of both. You’ll still have access to your account for making investment decisions and withdrawing funds, however, you may not have borrowing privileges. If this is your choice, you will need to monitor two different employer-sponsored plans going forward.
Consider rolling your 401k to another employer-sponsored plan if…
Again, when comparing cost and investment performance, your new employer’s plan offers an improvement in both including a broader range of investment choices. Even if the new plan doesn’t completely measure up to your old plan, there is the advantage of consolidating your plans into one for easier monitoring and management of your investments.
Consider rolling your 401k into an IRA if…
Transferring to your new employer’s plan is not a desirable option, or it’s not allowed, you can establish a Rollover IRA. Rollover IRAs can be established through a bank, a brokerage firm, a custodian and online trading accounts. You can shop and compare fees as well as investment options. The one advantage a Rollover IRA has over an employer-sponsored plan is the range of investment options available. You can usually achieve broader diversification from among a wider choice of asset classes.
A Rollover IRA may also be more preferable for people who have more than one 401k plan from former employers. It can be more convenient to manage your retirement assets in one plan.
Important Note: When establishing a Rollover IRA, it’s important to maintain it as a separate account from any other IRA you might have established if you plan on making any future contributions.
Because the rollover of a 401k has potential tax implications, it would be important to review your options with a tax professional. And, because each individual’s circumstances are unique, it would be helpful to seek the guidance of a financial professional experienced in retirement planning in selecting the most suitable option for you.