There are many valid reasons to consider a 401k rollover.
While it may not seem like it, you are paying for your funds to stay with your old employer’s sponsored plan. You just don’t see it. Fees for employer plans are not very transparent. While you may not see an actual bill, your employer is probably paying for the administration of the plan through hidden fees assessed on the balances held in it.
I have seen sponsored plans that had these back-end hidden fees and charged the participant a piece for each contribution. A little here, a little there all adds up. And the more it is, the less there is to compound for your retirement.
While there are few things that you can control in life and investing, fees are one of them.
In a rollover IRA, you’ll have more choices of platforms which may offer low loads and costs so you can keep more in your pocket. So control what you can when you can for successful investing.
Choice and Access
While some employer plans may offer a variety of funds which may be top of the line, you’re still limited to the menu selected by your employer. More often than not this is influenced by the broker associated with the plan. And this can be influenced by the restrictions placed on the choices by the broker’s company or administrator because there may be an incentive to fill the menu with one fund family.
I’ve seen plans offered through national payroll companies that required more than 50% of the fund choices to be of one particular fund family. Not every choice in a management company’s fund line up may be stellar so you’re limiting yourself by staying with the old plan.
When you rollover you’ll have a much larger universe to choose from. (My company has access to more than 14,000 non-proprietary mutual funds with no loads or loads waived). You’ll typically even have access to individual stocks, bonds, Unit Investment Trusts, Exchange Traded Funds and bank CDs.
Have you ever considered investing in something besides stocks, bonds or mutual funds? Maybe you might want to invest in real estate or buy judgments or invest in a business by being its lender or providing a friend with start-up capital.
Well, you can’t do that with a typical 401k plan. But you can with a self-directed IRA. And such an IRA can’t be done through the Big Box financial firms. There are specialized bank and non-bank custodians who handle such transactions and work through independent financial planners to help their clients learn more about such options.
Risk Controls & Broader Choice of Investment Strategies
While you may have online access to your company-sponsored plan so you can make trades or switches of your funds periodically, there really are no risk controls that you can use given the limitations of the platform the 401k is using.
Let’s put it this way: Investors make money when they don’t lose it. At least that’s my working philosophy. Having options and systems in place means that you stand a better chance of protecting your retirement nest egg.
It’s always easier to not lose money in the first place than it is to try to make up for lost ground. Your money has to work harder to get back to breakeven much less get ahead for your retirement goals.
Consider this: If you think that Treasurys or munis are in their own bond bubbles, what can you do to protect yourself through your 401k? Probably, not much. But in your own IRA you’ll be able to build a more all-weather portfolio that includes inflation hedges like convertible bonds, foreign dividend-paying stocks, master limited partnerships or even managed futures. All come in mutual funds or ETFs which offer the advantages of diversification without the tax and cost structures of direct investment options.
Or maybe you want to minimize the impact of another downdraft in the market. Using ETFs and trailing stop-loss orders you may help protect your gains. Not an option in your old 401k.
So when you roll your account over, you’ll also have access to professional help, tools and direct management options tailored to your specific needs that you just can’t get within your old 401k.
For more information, please call Steve Stanganelli, CFP® at the Rollover Helpline at 978-388-0020 or 617-398-7494.
Check out the website and newsletter archive for more on this and similar topics: www.ClearViewWealthAdvisors.com.