Should You Rollover Your 401k?

You’ve left your job, and now you have a question on what to do with your 401k.  You have a couple of options, and sometimes they’re related to the balance.  In most plans, amounts under $1,000 are sent back to you via a check.

If you have an amount greater than that, you can typically leave it in your current 401k plan, roll it over to a new 401k plan, or roll it over to an IRA.

So with all of these choices, what should you do with your 401k when you leave a job?

My recommendation is to roll it over to an IRA, and here are a few reasons why.

First, when you leave it in the current plan, the plan administrators may move the money into a fund that doesn’t invest in the same funds you were in. This doesn’t happen all the time, but it can. So it may get dumped into a higher cost fund because they make a little money that way.

Second, if you roll it over to a new 401k plan, your options are limited on where you can invest your money.  You’re limited to the funds available by the new plan.

The most important reason I recommend rolling it over to an IRA is control.

It’s your money, shouldn’t you be able to control where it goes? In a self-directed IRA, you can roll it into funds of your choice.  I prefer a Vanguard S&P Index 500 fund (VFINX).  This will earn dividends, is low cost, and moves with the S&P 500.


If you roll over your 401k, either into a new plan or into an IRA, you MUST make sure it’s a direct rollover.  This means that you cannot have a check made out to you directly.  It must be made out to the new account you created.  If it is made out to you, you will be subject to early withdrawal penalties and taxes.

Now you know your answer. Take control of your money and roll over your 401k into an IRA you manage.

If you have other questions, feel free to ask.


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