NEW YORK (MainStreet) — If you’ve left your previous employer, there is little reason to keep your cash in your old 401(k). Instead you should roll it into an IRA.
The benefits far outweigh the drawbacks, says John Lindsey, CEO of Lindsey & Lindsey Wealth Management in Westlake Village, Calif. Unless the expenses are significantly lower in the existing 401(k), there is no reason to leave your hard-earned money behind in that 401(k).
“Let’s say for example that Fidelity has the 401(k) plan for the company you work for, XYZ Co.,” he says. “When you leave XYZ, the firm is going to work hard to have you keep your assets in the plan or roll them into an IRA at Fidelity, which is most often the case.”
Of course, many employees discover they don’t know what the expenses are for their old 401(k) from a former employer, Lindsey says. The hidden fees are particularly egregious, and the lack of control over retirement savings can be detrimental to consumers.
Hidden Fees Add Up Quickly
The first set of fees are the ones assessed by the mutual funds, and 401(k) plans are “notorious for using very expensive mutual funds often because the plan sponsor or the employer receives a credit against the fees they pay to manage the plan," says David Twibell, president of Custom Portfolio Group in Englewood, Colo.
“It’s almost always a good idea to roll over your 401(k) funds into an IRA when you leave a job,” he says. “You have more flexibility in how to invest, you aren’t subject to lockouts and other annoying administrative issues and you can avoid the additional fees often associated with 401(k) plans.”