Three Reasons to Consider a 401(k) Rollover

401k to IRA

Written by: Harmony Wagner, CFP®

401(k)s, 403(b)s, and other similar employer-offered retirement plans have some great benefits. These plans make it easy to save directly from your paycheck and can help simplify the investment experience, especially for those in the early years of retirement saving or who have a relatively low account balance. However, there comes a time when it makes sense to roll your 401(k) assets into an IRA to be professionally managed.

This article will review three major reasons why you should consider rolling over your 401(k) to an IRA.

  • Investment Options
  • Fees
  • Consolidation


Investment Options

Anyone who has ever tried to make an investment selection in their 401k has probably noticed that the list of available investments is somewhat limited. The typical 401k plan offers 25-40 funds to choose from when selecting investments. Having limited options can be a relief to the average 401(k) participant who most often does not have the time, interest, or knowledge to build a portfolio on their own from a large selection of investment options. However, while these over-simplified fund options are not innately bad, it is generally preferable to have one’s assets managed more tactically by a professional advisor. This becomes even more important in the later years of one’s career when the balance in 401(k) plans typically represents a large percentage of one’s overall wealth.

An important disclaimer is that this assumes that the IRA is being professionally managed by a trusted advisor. It is not prudent to take matters into your own hands when it comes to selecting the investments unless you have sufficient expertise and time available to conduct the appropriate market research necessary to make informed decisions. If 401k assets are moved to an IRA where they are not managed appropriately, there is significant risk that the performance may be considerably worse than if it had remained in the 401k with more limited investment choices. A trusted fiduciary advisor will help ensure that your portfolio is invested appropriately considering your investment time horizon and tolerance for risk, as well as your unique financial situation and goals.



If it surprises you that you are paying fees on your 401k assets, you’re not alone. A 2021 study from the Government Accountability Office found that 41% of 401(k) participants did not know that they were paying fees on those assets. These fees go to a number of different parties for a number of different purposes, from underlying investment expenses to administrative fees and service fees.

The average all-in annual fees on 401k assets are 2.22%, which translates to an average of over $138,000 paid in 401(k) fees over one’s career for a 25-year-old American employee earning a median salary. Imagine what you could do with an extra $138K in retirement! By rolling 401(k) assets out of former employer plans as soon as possible, you can help to limit the total 401(k) fees paid over your lifetime. Since IRAs often have lower fees than employer plans, you are likely to benefit from an increase in net performance over time, which can compound considerably over several decades of working.



As you progress through your career, you may work for multiple different employers. Each time you change employers, it benefits you logistically to roll the existing employer plan to an IRA. It tends to be easier to do this soon after your transition, as you may still have connections to the HR personnel who will need to assist and are more likely to have the necessary information to access your retirement account. This could include your login credentials and the correct contact information. If you choose to wait until retirement to start consolidating all your accounts, you may find it much more difficult to trace back to a 401(k) you had early in your career, which could be 30+ years old by that time. In addition, having numerous accounts at different custodians makes it more difficult to ensure they are all being invested appropriately according to your tolerance for risk. Ideally, when it comes to pre-tax retirement accounts, most people should have only one professionally managed IRA and one 401(k) through their current employer.


A Note About In-Service Distributions

Perhaps after reading this article, you are convinced of the benefits of moving 401(k) assets to an IRA to be professionally managed by a financial advisor that you trust. However, the majority of your retirement savings may be in your current employer plan. In that case, you may qualify for an in-service distribution, depending on whether that option is allowed by your specific plan and what the restrictions are. An in-service distribution allows someone who is still working to roll some or all of their current 401(k) assets out of the employer plan to an IRA, without losing their eligibility to continue contributing to the 401k as long as they remain employed. This strategy captures the best of both worlds by allowing employees to take advantage of lower fees and more tactical management, while still being able to save into their 401(k) directly from their paycheck as long as they continue to work. When available, this type of rollover is usually permitted for employees who have reached a certain age, typically somewhere between 55 and 65.

If you have 401(k)s from previous employers or if you think you may be eligible for an in-service distribution, please feel free to contact our team for a discussion.


Bouchey Financial Group is a fee-only, fiduciary, financial advisory firm with locations in Saratoga Springs & Troy, NY.

Posted in