I worked at that place for 7 years, they were always good to me and the 401K always did well for me, I’ll just leave it there… NO!!!
- Often times the on-going contributions we make to our 401K’s mask the actual performance of the portfolio. Most employer sponsored retirement plans have very limited investment selections. At first glance it may appear that you have 30 options and then you notice that 18 of those options are just variations on a retirement target dating strategy.
- The 401K industry is a competitive market. Employers may change the company sponsoring the plan every few years in an attempt to cut costs. That doesn’t sound like a big deal, until you get the notice informing you that the investments you are in are no longer offered and they are transferring your funds to different funds that they deem to be a match for the investment you’ve been in for the last 6 years… Also there’s typically a “Blackout Period”. This period can be 30 days to 60 days where you cannot transact on your account, i.e. exchanges, rollovers, and withdrawals. This does not make it very user friendly for your needs.
- An often missed concern is change of ownership. If you leave an employer and they sell their business, each passing of ownership makes it more and more difficult to track down your account.
- 401k’s do not provide you the flexibility to indicate the tax withholding appropriate for you, the client. Rollover eligible distributions are made with a blanket 20% federal withholding, which, by the way, there is no 20% federal income tax bracket… makes sense…
Bottom line, 401k assets almost always make sense to roll to either your new employers plan (if available) or more commonly an IRA. Consult a qualified adviser to discuss your specific circumstances. Not all qualified plans have the same provisions and an individual analysis is necessary!
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