Should I Roll Over My $1M 401k in Retirement?
With a 401k balance exceeding $1 million, retirees in St. Louis (and across the country) face an important decision - should they roll over funds into an IRA or leave it with their employer? This guide examines the pros and cons of both options.
Pros of Rolling Over a $1M+ 401k to a Traditional IRA in retirement:
- More investment options: Gain access to a wider range of stocks, bonds, mutual funds, ETFs, and alternatives. Not limited to an employer plan's menu.
- Better asset allocation: Hire a professional to construct a personalized portfolio aligned to your risk appetite and income needs.
- Consolidation: Combine multiple old 401(k)s into a single IRA for simplicity.
- Tax flexibility: Move money between Roth and Traditional IRAs for conversions.
- Withdrawal control: Take RMDs from your own schedule instead of plan rules.
- Strategies beyond portfolio management: Incorporate comprehensive and unique retirement planning strategies hand-in-glove with your portfolio.
- Service: Work with one professional on an ongoing basis who knows you, your plan, your portfolio and your goals. You won’t be just another number, you don’t have to repeat your social security number to talk to someone, and we’re just a phone call away - not a hot-line.
- Internal Fund Fees: Potentially lower internal fund fees, but likely higher AUM fees. Move away from funds with higher internal expense ratio to those with lower ones. AUM fees are likely higher inside Traditional IRAs, though.
Cons of an IRA Rollover in Retirement:
- Fewer creditor protections: IRAs receive less protection from lawsuits/bankruptcy than 401ks.
- Company stock: 401(k)s allow net unrealized appreciation transfers. With this strategy, the company stock portion of the 401k would move into a regular taxable account.
- Overall Expenses: Likely higher overall expenses inside a Traditional IRA to compensate for comprehensive retirement planning services and strategies.
- Losing out on early retirement benefits: You will be penalized if you withdraw from an IRA before age 59.5 whereas a 401k can be withdrawn from as early as age 55. There is a 10% early withdrawal penalty in an IRA.
- Self-service: If you are someone who enjoys managing your portfolio yourself via your employer of plan portal, and you are confident with the many available planning strategies to retirees, then leaving it in a 401k might make more sense.
Our local advisors can analyze your full financial picture to determine if rolling over your 401k makes sense in retirement. We help implement advanced strategies to minimize taxes and target your income.
A $1 million plus 401k balance provides retirees near St. Louis (and across the country) significant options. You should evaluate the tradeoffs and customize a plan for your needs.