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How to Successfully Roll Over Your 401(k)

Posted by Michael J. O'Connor | CWS®, Vice President Investments
August 29, 2018

3 Different 401k Rollover Options to ConsiderWhen a person leaves a job to retire or to join another employer, there are often decisions about what to do with your 401(k). Should you leave it where it is, and just not mess with it? Should you roll it over to your new employer’s plan? Should you roll it into an IRA?

Those three questions, in fact, present three distinct options for an investor to potentially choose from. In this post, we’ll examine each option, detail the pros and cons, and in the process, hope to provide you a road map for how to successfully manage your 401(k).

After all, there’s no reason for an investor to not do something with their 401(k) because it just seems too hard to move without incurring penalties. Our biggest suggestion though is that – unless it’s absolutely necessary – you resist the temptation to cash out. Cashing out of a 401(k) and taking it as a distribution means potentially incurring a sizable tax burden, and if you are under the age of 59 ½ your distribution will also be subject to an early distribution penalty of 10% unless an exemption (such as medical costs) exists.

Option #1: Leave Your 401(k) Where It Is

Pros: Your former employer may have a 401(k) administrator and/or custodian that you really like, with investment options you find desirable and that have delivered solid performance. You may also have a long history with the company, and therefore know the ins-and-outs of getting your 401(k) questions answered.

Tip: Not all companies and/or 401(k) administrators will let you keep your 401(k) there once you leave, but many do – you can just ask the administrator or your HR contact to find out.

Cons: Leaving your 401(k) behind means ceding control over who your custodian is, who manages your assets, and what your investment options are. Rolling your 401(k) over would give you control over those considerations. Also, there’s a chance your employer could change the plan administrator, or that the plan administrator can change the investment options in the future.   

If you’re thinking about leaving your 401(k) where it is, make sure to run the idea by your wealth manager first. He or she can help you vet how well your existing investment plan is designed to serve your needs and make suggestions for improvement.

Option #2: Roll Your 401(k) Over to Your New Employer

Pros: If your new employer has a 401(k) plan, you may have the option of rolling your old 401(k) into your new 401(k). The biggest advantage here is that you can consolidate your retirement plans and keep everything in one place. Having fewer accounts to manage could mean giving each account the attention it needs.

Tip: The process of moving a 401(k) from one employer to another is fairly simple and straightforward, however it will likely involve speaking with the plan administrators of both 401(k) plans. You might need to speak with people in HR at both companies to get it done, and it might involve a bit of back-and-forth and paperwork. Alternately, you could enlist a Wealth Manager at WrapManager to help you seamlessly handle the entire process.

Cons: Not all 401 (k) plans are created equal. Your new employer may have a 401(k) plan that’s lacking in solid investment options or is managed by a plan administrator that is less-than-optimal with operations help and reporting (statements and online access).  

Option #3: Roll Your 401(k) Over to an IRA

Pros: If you’re rolling a 401(k) into an IRA, you have almost unlimited options as to how you can invest your money. There are hundreds of good money managers and investment programs out there to choose from.

Additionally, since rolling over a 401(k) involves creating a new account and choosing new investments, why not also use the opportunity to review all of your investments and re-evaluate your plan? It’s a perfect time to think about your investment objectives, risk tolerance, and to determine whether your current funds or money managers are meeting your needs.

Tip: The first step in rolling over your 401(k) is deciding where it will go. Do you already have brokerage or retirement accounts at your bank or another custodian, like Fidelity or Schwab? Once you know where it will go, you can fill out paperwork to open a Rollover IRA account (this can even be done online in many places), and then work with a representative or a Wealth Manager at WrapManager to help you facilitate the rollover.  

Cons: N/A (there aren’t any cons we can think of)

Whatever you decide to do, make sure that you fully understand the implications of a 401(k) withdrawal vs. a 401(k) rollover. The difference is important and getting it wrong could cost you!

WrapManager Can Help You Decide How to Manage Your 401(k)

At WrapManager, we have Wealth Manager who can help you evaluate your 401(k) options so you make a decision that best meets your needs. Even if you’re not retiring or switching jobs, our Wealth Managers can still help – we can take a look at your investment options, your current allocation, and make recommendations based on your goals and needs. Start a conversation with us today at 1-800-541-7774 or over email at wealth@wrapmanager.com.


The information presented by WrapManager, Inc. is general information only and does not represent tax or legal advice, either expressed or implied. You are encouraged to seek professional tax advice for income tax questions and assistance. WrapManager, Inc. does not advise on any income tax requirements or issues.

This material is not intended to be relied on as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. The information presented is general information that does not take into account your individual circumstances, financial situation or needs, nor does it present a personalized recommendation to you. The information and opinions contained in this material are derived from sources deemed reliable, are not all-inclusive and are not guaranteed as to accuracy.

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