401(k) Rollover

I am a 29 year old that recently switched jobs. I was wondering what I should do with my former employer’s 401(k)? Should I roll over into an IRA, and what are the benefits of rolling over?
- William, Pennsylvania

In nearly every circumstance I would recommend rolling over an old 401(k) into an individual retirement account (IRA). The reason being is because you have a lot more control over where you invest your money. Most 401(k)’s limit the number of investment options a plan participant can put their money in. Also, the mutual funds that many 401(k) plans offer are often loaded with high expense ratios and other hidden costs. As an individual investor, you have practically an unlimited amount of options. Unless your former employer’s 401(k) offers you attractive options that are not available to you outside of the plan, I would recommend rolling it over into an IRA at Vanguard (www.vanguard.com) or Fidelity (www.fidelity.com). Vanguard offers low-cost index mutual funds that outperform many of its actively managed peers. Fidelity offers a variety of mutual funds including similar low-cost index fund and it also has a brokerage where an investor can purchase individual stocks. As an added bonus, many mutual fund companies will handle the 401(k) rollover for you at no charge.

Matt / Google+

One thought on “401(k) Rollover

  1. I just got laid off, so I had to figure out what to do with my 401(k). I chose to roll over my account to an IRA because of the reasons you mentioned above. Besides the options you mentioned (low-cost index funds and the like), I’ve also gotten interested in the target date funds…for people our age, they’re definitely more aggressive, but I like that they’re pretty diverse and contain a good combination of stocks, bonds, and cash for your approximate age.
    When I was arranging the roll-over, I was also told that it’s a good idea to just roll over your 401(k)s to an IRA every time you leave a job, and just have money sit there growing. I think that’s a good idea…I’ll keep contributing to the max in my Roth IRA, and can work towards the max of my new 401(k) (whenever I get a new job!)

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