The band called The Clash has a popular song “Should I stay or should I go.”
Although they are talking about a personal relationship in the song, the same can hold true to your relationship with your 401(k) through your employer.
The lyrics read,
“Should I stay or should I go now?
If I go, there will be trouble
and if I stay, it will be double
so come on and let me know!
Should I stay or should I go now?”
Let’s begin by saying that sometimes a 401(k) can be a very good thing, and sometimes it can be the biggest financial pain in your retirement years. The reasons for this are varied and we will go into that with another column some-time.
Today, we will just look at the choice of rolling out of the 401(k) and into your own IRA. Most don’t know that this is a choice many employers allow you to make, even if you’re still employed. The old thought that you have to be separated from service and/or completely retired isn’t always true.
If your company plan won’t allow for you to do rollovers while you’re still employed, shame on your employer. This is something that every employer’s plan should allow. But regardless of your choices while you’re still working, you definitely can roll your money out of the 401(k) plan and into your own IRA once you are no longer working for your employer.
Let’s assume you move on to another company, or maybe you just retire. What are the benefits of leaving your 401(k) with your old employer’s plan? The answer for most of the people we see is that they can continue to pay higher fees, have limited investment options, and continue to get poor service or no service at all. What a deal!
Let’s start by looking at the fees. In all 401(k) plans, you will find a variety of fees and charges. Some of these fees are expected and even understood, but most are not.
Because of the new Department of Labor disclosure requirements beginning April 1, many businesses will get critical information on the true cost of their employee retirement plans and the unnecessary fees that they are paying.
Under the new requirement, insurance companies, payroll services, and to some extent, mutual fund companies will no longer be able to hide their unconscionable fees to people participating in their retirement plans.
It isn’t unusual to find 401(k) plans with total costs paid by the participant exceeding 3 percent of account total annually, with investment choices limited to subpar proprietary funds and payments to the various providers not related to services rendered.
Next up, we have the limited investment options available to you. Did you ever wonder why you only had a few choices or companies to pick from with the investments? For example; most of the plans we see will only have one or two choices for safety. Most people given a choice would rather have more investment choices as opposed to just a few.
Lastly, let’s take a look at service. Your employer, by law, isn’t allowed to give you investment advice, so most people are on their own. It’s possible that you have a representative or financial planner associated with your account, however, most of them are compensated by the group plan and have little incentive to give you great personal attention.
Considering all factors, rolling your 401(k) may make the most sense for you, but as always, you should consult with a good financial planner.