/ Personal Finance

Should you roll your 401(k) into an IRA?

Among the dozens of other adjustments that come with changing jobs, you'll need to decide what to do with your retirement account. Which begs the question: should you rollover your 401(k), or leave it with your previous employer?

You'll want to consider a few factors. For starters, if your assets fall below $5,000, your prior company may not allow your continued participation in its plan in the first place. At this point, you'll probably need to roll your assets into an IRA, anyway.

Even if your account size does exceed the minimum threshold, you may be required to pay steep account fees previously covered by your ex-employer. The fees associated with 401(k)s can be markedly higher than with IRAs, especially depending on the platform you choose to use for your traditional or Roth. Even lower-cost plans may charge higher administrative fees for former employees who leave their accounts behind. Either way, the expenses start to add up.

At the very least, continuing to hold retirement savings in old 401(k) accounts simply adds another layer of complexity to the landscape of your personal finances. Keeping track of several accounts can be cumbersome, and many Americans simply forget about old accounts altogether. And with a large portion of the workforce changing jobs 12 or more times over the course of a career, it's easy to see why maintaining several separate retirement accounts isn't always ideal.

So should you leave your retirement savings where they are, or rollover your 401(k) to a traditional or Roth IRA? Here’s why transferring your assets into an IRA may be your best bet.

Lower fees (or none at all)

Consider a few dismal statistics. Only 27 percent of Americans know what they're paying in fees for their 401(k) accounts, 37 percent mistakenly think they aren't paying fees at all, and 22 percent don't even know if their plan has fees. Meanwhile, a whopping 95 percent of 401(k) participants pay administrative and fund fees on their accounts.

Unfortunately, when it comes to fees, ignorance is certainly not bliss. Even a seemingly-small deviation in basis points can result in massive hits to your savings over the course of many years as you prepare for retirement.

Consider this example from the Department of Labor:

Assume that you are an employee with 35 years until retirement and a current 401(k) account balance of $25,000. If returns on investments in your account over the next 35 years average 7 percent and fees and expenses reduce your average returns by 0.5 percent, your account balance will grow to $227,000 at retirement, even if there are no further contributions to your account. If fees and expenses are 1.5 percent, however, your account balance will grow to only $163,000. The 1 percent difference in fees and expenses would reduce your account balance at retirement by 28 percent.

401k Fees Over Time

Considering you can open and maintain an IRA with M1 Finance for free, with zero fees and zero commissions, 1.5 percent seems exorbitant. In the previous scenario, paying no fees on your retirement savings compared to 1.5 percent can mean pocketing an additional $42,000 or more for your golden years. Even compared to a 0.5 percent fee, users investing for free will save approximately $16,000 more by retirement age.

More investment opportunities, more control

Investment opportunities with 401(k) plans tend to be limited, and include mostly mutual funds (which is why your management fees may be high). IRAs, on the other hand, open up a whole new world of investment opportunities, offering significantly more freedom of choice, with options like M1 allowing investors to choose from thousands of stocks and ETFs. This means you can invest in exactly what you want without sacrificing portfolio diversity.

Ultimately, additional investment options mean greater control, and, more importantly still, the ability to know what you own and why you own it. Rather than investing blindly in funds chosen by your previous account administrator, an M1 traditional or Roth IRA can be tailored to align with your unique financial needs, risk tolerance, and even your personal values. So whether you opt for an M1 Expert Pie or hand-pick your portfolio from more than 6,000 stocks and ETFs, you'll know exactly where your money is going and why. Top it all off by creating a funding schedule, so it's easy to continuously build wealth and invest in your future.

Customize Your M1 Finance Portfolio

Everything in one place

Consolidating your retirement savings does more than reduce the number of accounts you have to keep up with over the years — though that alone constitutes a major perk. With all your assets under one roof (or, at least, fewer roofs) you can more efficiently evaluate risk and return to hone and develop your investment strategy over time.

Plus, you'll get a more comprehensive picture of how prepared you are for the future, and streamline decisions about required distributions when you finally reach retirement age. In the meantime, centralizing your holds can mean less paperwork to maneuver and may even improve the tax-efficiency of your investments.

So... How do I take the leap?

Even once you've decided you should rollover your 401(k), it can be easy to tack "transfer retirement account" onto your to-do list, only to forget about it. Many of us delay rolling over our accounts because we expect it to be a long, manual, and arduous process. Luckily, it doesn't have to be this way. M1's Rollover Concierge team makes it easy to transfer existing retirement accounts into a traditional or Roth IRA. And just like our platform, it's totally free.

Rollover a 401k to M1

Member of SIPC. Securities in your account protected up to $500,000. SIPC insurance does not protect against loss in the market value of securities. For additional information visit www.sipc.org. Securities and services are provided to clients of M1 by M1 Finance Inc., member FINRA/SIPC. Investments are not FDIC insured and may lose value. Investing in securities involves risk, and there is always the potential of losing money when you invest in securities. Please consider your objectives and possible fees before investing. Past performance is not a guarantee of future results. Diversification is not a guarantee of positive performance. Please note that investments in an IRA may have tax consequences if there are withdrawals before age 59 and 1/2. This is not an offer, solicitation of an offer, or advice to buy or sell securities in jurisdiction where M1 Finance Inc. is not registered.