Retirement plan consolidation considerations
If you’ve changed jobs, you may have workplace retirement accounts in multiple locations. You may want to consider rolling your 401(k) funds into an Individual Retirement Account (IRA) or your current employer’s plan. Having one account can make your life simpler. But which option should you choose?
The best choice is the one that’s right for you
The best choice for you depends on your personal situation, your goals, and the investment options, fees and other details of your current employer’s plan. Here’s a quick comparison:
Potential advantages of workplace retirement plans
Here are some potential advantages of rolling your accounts into your current workplace plan or leaving your account in your prior workplace plan:
Fiduciaries of employer-sponsored plans are responsible for choosing an investment lineup that’s in the best interests of their employees.
Potentially lower fees
Thanks to institutional pricing, investment fees and other expenses in employer-sponsored plans may be lower than those in IRAs. Fee disclosure rules for workplace retirement plans also make it easy to compare the costs of retirement plans and IRAs.
Access to loans
Workplace retirement plans often allow you to take loans from your savings. Keep in mind that taking a loan from your retirement account can really cut into your progress toward your goals.
Potential advantages of IRAs
Here are some potential advantages of rolling your plan balances into an IRA.
More investment choices
Perhaps you feel limited by your workplace plan’s investment choices and are willing to pay potentially higher fees in exchange for more investment options. Most IRAs have a wider variety of choices than a workplace plan.
Maybe you want some of your retirement savings to be independent of your employer. You can invest in an IRA through financial services groups, such as Lincoln Financial, or through a bank.
Potentially greater access to your money
You may take a distribution from your IRA at any time for any reason. Distributions are subject to normal income tax and, in some cases, a 10% penalty tax if they're made before you reach age 59½ unless certain conditions apply. The IRS permits IRA account owners to withdraw their funds penalty-free under certain circumstances, such as for qualified education expenses or a first-time home purchase. Standard income taxes still apply to these types of withdrawals.