A. When you leave a job, you have the option to rollover your 401(k) or 403(b) money to a Rollover IRA account. But should you do it? We will provide a detailed analysis the Pros and Cons of Rollover IRA here.
Pros of Rollover IRA
a. More investment options
Most 401k or 403b plans have very limited investment options. If you roll your money to a Rollover IRA account, you can pretty much invest in any investment products you like, especially for people near or in retirement ages, you can access any bond funds which are very limited in most 401k or 403b plans.
b. Better investment options
While many 401k/403b plans have low cost funds, some plans have costly funds. Companies are required by law to disclose the fees they take out of your account to pay for administrative fees, you can review your quarterly statements for details. The average fee for stock funds is 0.68% and for bond funds is 0.54%.
c. Easier account management
If you have changed several jobs, you might have several 401k accounts left behind. Rolling them into one Rollover IRA account could really simplify your account management so you won't leave anything behind.
d. Flexibility to withdraw
Some 401k plans have very limited withdrawal options, often "all or nothing". In such cases, rollover IRA accounts can provide you greater flexibility if you need money. In addition, even your 401k account allows partial withdrawals, you cannot specify which funds to sell, instead the plan takes an equal amount out of each of your investments. In Rollover IRA accounts, you can sell whatever you like to sell.
e. Avoid higher fees
Some plans charge former employees higher fees, for example, higher administrative fees for some funds, which makes the low cost fund options less attractive, if such options are available.
In our next blog post, we will discuss the Cons of Rollover IRA.