A 401(k) rollover is the direct transfer of the assets held in your 401(k) account to a new account or account provider.
You may wish to change the type of account in which your retirement assets are held (for example, by transferring your stocks and bonds to a traditional or Roth IRA or to a SEP IRA) or you may wish to change the company that manages your 401(k).
Quick Look: The Best Places to Rollover Your 401(k)
In some cases, you may be required to rollover your 401(k). For example, if you change jobs, your former employer will most likely give you a limited window in which you can roll over your account. Even if you aren’t planning on rolling over your 401(k) anytime soon, research and understand where you’d like your money to go in case you need to choose a rollover option. It can help save you from stress and a financial headache should you leave your job.
We’ve compiled a list of some of the best places to roll over a 401(k) account, along with some additional information on when you should and should not roll over.
Why Would You Want to Roll Over a 401(k)?
Here’s why you may consider a switch.
Most 401(k) accounts include management fees, though some employers will cover this fee. Since most IRAs are self-directed, they do not charge annual fees related to management.
Some IRA providers, like Vanguard, offer both free account maintenance and fund expense ratios significantly less than most 401(k) management accounts. You can even open an account managed by a robo-advisor and pay less than 0.50% in management fees.
Loopholes to Early Withdrawals
If you withdraw funds from your 401(k) before retirement (unless in very specific circumstances), you’ll pay a whopping 10% in penalties. IRAs are much more flexible when it comes to early withdrawals. For example, you can withdraw from your IRA to fund a first-time home purchase or higher education expenses.
A Wider Range of Investment Control and Selection
When you contribute to your 401(k) account, your employer (or your employer’s team of investment advisors) most likely gets to decide where that money will go. With an IRA, you are in control—and there are unlimited possibilities with stocks, bonds, mutual funds, and ETFs.
Improved Estate Planning Options
After you die, your 401(k) account will be disbursed to your beneficiaries as a one lump-sum payment. IRAs provide increased flexibility when it comes to estate planning and payout schedules.
Benefits Without Penalties
You can enjoy all of these benefits with no initial start-up fee—it’s free to rollover your 401(k) into an IRA with most providers.
Why You May Not Want To Roll Over Your 401(k)
Rollovers aren’t for everyone. Consider the following:
You Need Money Access to Your Money Earlier
If you retire early, you can start making withdrawals from your 401(k) account penalty-free starting at age 55. Under most circumstances, you may not begin making withdrawals from an IRA until age 59 ½.
You Have a Large Number of Assets You Need to Protect
401(k) assets are protected in the event that you need to declare bankruptcy or you have creditors coming after you. IRA protection status varies by state, so you may not be covered.
If you live in California, Georgia, Maine, Mississippi, or West Virginia, your IRA has the potential to be seized if you are found to be at fault for a costly lawsuit. Even in states that protect IRAs, bankruptcy protection is typically limited to $1.28 million in assets.
You Want to Hold Onto Your Money a Little Longer Before Dipping In
401(k) accounts and IRAs both require that payouts start to be received no later than when the owner of the account turns 70 ½ years old. However, 401(k) accounts have a loophole that allows owners to defer these payments until after they actually retire; IRAs offer no such loophole.
The Best Places To Rollover A 401(k) Account
If you rollover your 401(k), make sure you do in the right place. Take a look at Benzinga’s top places to rollover your retirement account.
1. Ally Invest
Ally Invest is a leader in low-cost stock trading but the broker also offers a host of benefits for those looking to roll over a 401(k) plan. Ally Invest has been designed with frequent traders in mind—it’s hard to beat Ally’s low commissions, live quote streaming services, and customizable charting tools.
The platform even supports forex and futures trading, two securities that are often excluded from discount brokerages. Unfortunately, unlike other brokerages, Ally does not offer any commission-free mutual funds; you’ll have to pay a commission of $9.95 on each purchase, which is significantly higher than competitors.
However, if you are looking to move into an active trading position, Ally’s extensive free trading research and tools, a large number of tradable securities and easy-to-use mobile app may be worth the additional mutual fund fees.
$6.95 for fewer than 30 trades/quarter.
- Mobile traders
- Traders looking for research and data
- Investors looking for retirement planning guidance
Most active traders associate the name E-Trade with simplified low-cost day trading but the platform also offers a number of easy options for long-term investing as well.
The broker offers over 150 no-commission ETFs alongside 4,400 mutual fund choices. E-Trade’s research tools are free and extensive, and you can compile a custom portfolio by investing in funds or by selecting the stocks, bonds, and options that suit your needs.
With 24/7 customer support options, E-Trade makes rolling over an existing 401(k) account easy.
3. TD Ameritrade
TD Ameritrade offers something for everyone, no matter the savings goal or how far away you are from retirement. For hands-off investors searching for mutual funds and ETFs, TD Ameritrade offers an extensive collection of over 4,000 commission-free mutual funds and 300 commission-free ETFs.
For the more advanced trader, TD Ameritrade shines with its research and analysis tools, largely considered to be the most comprehensive on the market. TD Ameritrade offers three separate trading platforms, a full-service app, and a full range of tradable securities which includes forex and futures trading.
Commissions are reasonable at $6.95 per trade and TD Ameritrade also has a $0 account minimum for IRAs, meaning that anyone can roll over an account today. With no expensive inactivity fees and a wide selection of both short and long-term securities, TD Ameritrade is equally as useful to the active day trader as it is to the passive investor saving for retirement.
0.25% annual fee for accounts 0.4% Premium Plan with additional features annual fee for accounts more than $100,000
- Intermediate investors
- Retired investors
- College students
Another robo-advisor for those seeking low-cost, hands-off management, Betterment currently holds about $11 billion in assets under management. Betterment has no account minimum and charges an annual fee of just 0.25% for management for accounts with under $100,000 in assets. If you enjoy goal-based saving, you’ll love
Betterment’s sign-up process, which guides you towards a series of short- and long-term financial goals based on age, risk tolerance, and income. Betterment also allows you to quickly add your own personal goals and adjust asset allocation ratios manually.
Betterment is best for low account balances and passive investing. Betterment’s robo-advising services make rolling over and expanding an existing retirement account simple.
0.25% annual fee
- Passive investors
- Lower fees
- Beginning investors
- Investors who don't want to manage money on their own
Wealthfront is a robo-advisor with over $10 billion in assets currently under management.
When you roll over an account to Wealthfront, the service will ask you a number of questions about your financial situation, employment status, age and outstanding debts to gain a better picture of your investing needs.
Wealthfront’s robo-advisors completely automate the investing process, dividing contributions into a unique mix of asset classes that suits your situation. From there, Wealthfront offers free threshold-based rebalancing and tax-loss harvesting—and you don’t lift a finger.
An excellent choice if you’re looking for hands-off investments, Wealthfront provides an affordable and streamlined solution for retirement savings.
0.30% annual fee
- Set-it-and-forget it investors
- Saving on taxes
- Complex financial planning for retirement
One of the world’s leaders in low-cost investing, Vanguard offers over 70 commission-free ETFs and over 2,800 commission-free mutual funds if you purchase your funds directly through Vanguard’s site.
Rolling over an account with Vanguard is easy, and your assets can quickly be transferred to a Roth IRA, a Traditional IRA or a SEP IRA if you are moving into independent contracting or you’re looking to start your own small business. Vanguard’s platform makes investing easy and most of its mutual funds have rock-bottom expense ratios.
For example, its most popular offering (the Vanguard S&P 500 Admiral Class) has an expense ratio of just 0.04%, over 80% lower than most competing index funds on the market.
Though most men and women can open and maintain an IRA with little hassle, there are limitations on this type of account that may not make it the right choice for everyone. Annual contributions are severely limited; most Americans are limited to $5,500 in traditional or Roth IRA contributions each year vs. the 401(k) $19,000 annual limit in 2019.
If you plan to contribute more to your retirement account and you are considering rolling over to start your own small business or become an independent contractor, the higher contribution limits in a SEP IRA may make this type of account better suited for your needs. To learn more about the SEP IRA, check out Benzinga’s IRA crash course.