401(k) Rollover: Take Charge, Not Play Dead

I wouldn't call myself a control freak...let's just say that I just like to be in charge. There is no place in which this is more true than where my money is concerned. I want to know where my money is, how it is performing, and what my options are. That is why the minute I left my former employer and that former 401(k) Employer-Sponsored Retirement account became available to me, I rolled it over to an Individual Retirement Account (IRA). 

However, most people do not know to do this. If you are like most people, you still have a 401(k) or other type of employer-sponsored retirement plan that is just sitting there.  If so, you need to read this!

IRA vs. 401K

When evaluating my own situation, the advantages of being in an IRA rather than a 401(k) were numerous. I wanted to be able to choose my investments from the entire universe of funds, stocks, bonds, alternatives, etc., and I knew that my 401(k) would limit me by only allowing me to invest in a handful of funds. I also knew that in a 401(k) account, the investments could have higher expense ratios than they would if I just invested in them on my own (in an IRA). Expenses eat away at your returns over time, and these expenses come out of your investments without you even realizing it. So most people are not aware of the fees in their 401k accounts. I can't tell you how many people I have told that have been shocked to hear this.

I have the advantage of knowing these things because I have been in the industry. But if I weren't, I would be completely clueless. This is why I am sharing it with you now.

401k Rollover Advantages

The other major advantage is that with an IRA account, you can get professional assistance from a personal financial advisor, someone who knows your unique situation and who can actively help you to invest it. This is especially important because with 401(k)s, many people take the "start it and forget about it" approach. They think, "Retirement is a long way off  I will just stick it in some funds and let it grow." Ah, if life were only that simple! These retirement accounts are often the most neglected elements in a person's financial portfolio, yet arguably, they are some of the most important. You can't leave your retirement and the performance of your retirement account up to chance. There is a great advantage to having someone who manages portfolios for a living watching over your account and actively managing it. I have met many folks who are still invested in the same exact funds that they started with ten years ago. Do you really think that those funds are still the right choices now? (I mean think about how much has changed in your world in ten years!)

Personal Investment Quiz

With regards to your money, and more specifically, your employer-sponsored retirement accounts, you don't have to be a control freak like me, but you should be able to answer the following questions:

  • Do you know and understand what your options are?
  • Do you know where your money is and how much you have?
  • Do you know how it is performing?
  • Do you know and understand what it is invested in?
  • Do you know what the fees/expenses are (including the internal fees that you do not see deducted from your account)?

If you don't know the answers to these questions, I challenge you to seek them out.  And if you have a 401(k) or other employer-sponsored retirement plan still sitting with a former employer, I encourage you to talk to a financial advisor to determine if rolling it over to an IRA is a good option for you.

As you can see, "rolling over" does not always mean "playing dead."  When it comes to your 401k, "rolling over" signifies the exact opposite—taking control.