NEW YORK (MainStreet) Some $6 trillion is held in IRAs, almost half of which were funded by the transfer of assets from employer-sponsored retirement plans like 401(k)s. These rollovers feed the profits of banks, brokerages and advisors who sponsor workshops, "lunch and learns" and premium steak dinners to lure pre-retirees to transfer their assets. Nearly two-thirds (64%) of IRA owners consulted with a financial advisor before making a decision regarding a rollover.
But is a rollover really the right decision? Is a transfer of your at-work retirement savings from a 401(k) to an IRA an escape from limited investment choices, high fees and poor performance? While millions of marketing dollars are spent to convince you of just that, the reality is not quite that simple.
Investors face four options
Usually there are four options when a 401(k) plan participant retires or otherwise leaves an employer: cash out the value, rollover the assets to an IRA, rollover the assets to the plan of a new employer or leave the money in the former employer's plan. There are tax and possible penalty considerations, as well as fees, investment options and retirement needs to be considered with each choice.
Preserving the tax-deferred (or in the case of Roth arrangements, tax-free) treatment of retirement savings is the primary reason investors rollover their accounts to an IRA, according to 2013 research conducted by the Investment Company Institute. Many investors (68%) say they simply didn't want to leave their assets with the former employer. The often-mentioned desire to gain more investment options was noted by 61% of IRA owners. And more than one-third (35%) of the investors said they "were told by a financial advisor to rollover the assets."