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Hey, Mike. Should I roll my four 401 k into an IRA when I retire or leave it where it is? There's some pros and cons here.

Yeah. So you would naturally just think, oh, I'm done with work. Let's just move on. Yeah. But there's a few factors you've got to consider.

I don't wanna name names, but there are some companies out there that have special four zero three b plans, for example, so not necessarily a four zero one k, that have tax benefits sometimes for state taxes.

Okay.

There are some employer plans that I know, very familiar with, that may have a VIP situation. It's a subtle hint to a company out of Washington that makes airplanes, but I won't say who it is.

I know.

That have really cool benefits that you won't be able to get elsewhere. Oh. Like a a potentially higher cash account, or just some other mechanisms that you just can't get outside of a plan. There are certain tax rules, like the rule of 55. So if you retire at 55 or 56 or 57 years old, you can't pull money out of an IRA without getting that additional 10% penalty on an early withdrawal.

But if you leave it in your four zero one k, you can take it out without penalty. So there's a timing issue with this one. But generally speaking, my opinion is as long as the fees make sense, you don't wanna leave a nice four zero one k with virtually no fees. Yeah. And move it into some arbitrary adviser charging you 2%, or you move it into some sort of investment that's high fees, and it's basically the same thing.

That can happen. I don't think it really ever happens, but I wanna just prove the point. You don't wanna move into a worse situation. Four zero one k's are fine if you wanna keep it there, but just be aware that there are fees in your four zero one k. You've got admin fees, because it's a lot of work to manage a four zero one k or a four zero three b or any of those situations.

Mhmm. Sometimes the admin fees may seem low, but then you've got fees on the investments. Maybe the admin fees and the fees on the investments seem low. Well, maybe then it's you've got 12 b one fees on the funds that you're allowed to take, and that's why they've restricted you to, I don't know, 20 different funds. Yeah.

So you just and I'm not accusing all the four zero one k places of doing this. Everyone's gotta get paid, but many people don't understand the fees associated with their 401K accounts or 403B or whatever it might be. But the big thing in my mind that I find limiting with four zero one k's and why someone might wanna move things over is really the investment selection. Some four zero one k's offer like a brokerage link, which is kind of nice that you can be more versatile with it, but it's hard to invest in real estate in a four zero one k. Because real estate, in my opinion, would be more like physical real estate through a self directed IRA.

You could do a privately traded REIT. You I mean, there's like number of things you could do in the real estate sector that you can't really do in a four zero one k if that's what's right for you. If you wanted a buffered ETF, you may not be able to get buffered ETFs in your four zero one k, but you could in an IRA, like a traditional IRA. You may not be able to have as many options like stock picking, if that's what you wanna do, in a traditional four zero one k, but you could do that in an IRA.

You can do virtually whatever you want in an IRA. Right?

If they take IRA assets, a traditional IRA, as the account, and the underlying investment can be supported with it, yeah, it's guy's the limit. Uh-huh. World's your oyster.

As opposed to a employer sponsored four zero one k where somebody, somewhere, the plan sponsor has made the decision. Oh, these these are your investment options.

Yeah. They're getting better though, but they're getting better. I wanna give it the benefit of the doubt that the brokerage link, you can go out and do more with it. You're placing the trades. But they're doing the admin fees.

If why would you pay for the additional services, the administrative cost if you're already placing the trades? Because at that point, once you separate employment, you might as well just roll over to traditional IRA and just manage it without the extra costs. Mhmm. Understanding that it does make sense to sometimes keep money in the four zero one k. Don't just say, I retired, move everything over, and then talk to a financial adviser or figure it out yourself.

My opinion is to keep your assets in the four zero one k first, then build the plan Mhmm. So that you don't make a mistake and roll things over, and then oops, we should have kept 50 k, 500 k, whatever it is in the four zero one k. You can't reverse transaction.

What if you retire, and then a couple years later, the company that sponsored the four zero one k goes out of business? Are your assets stuck there? Are they locked there?

They should be at the custodian. Should be is the keyword. I've seen some strange things.

Uh-huh. Is that a risk, or is it kind of a lower risk?

It's a fair question. I'm nervous to answer it because I'm gonna say it's low risk, and then tomorrow the headlines are gonna say like the new Enron or whatever.

Oh, sure. Yeah. Yeah.

So if your assets are at Fidelity, or if they're at Vanguard, or if they're at Schwab, or whatever the four zero one k place is, and it's a common reputable place Mhmm. Your employer isn't like, I just I think it's low risk, which is the compliance regulatory body that does zero one k's in this area, I think they do a really good job just checking on things. Mhmm. I think the lessons have been learned. Yeah.

But that's not a guarantee. Right. That's just saying that we've done a better job from a regulatory standpoint. Yeah. Watch two weeks later, something comes out.

You know, x and x, state pension fund fraud, or I don't know. Yeah. I hope it doesn't happen. Right. But there's no guarantees in life.

And then that might be only if it's a really small small employer. Maybe the larger employers, you don't even have to really think about or worry about it.

Well, the plan's not gonna go away unless there's fraud. Unless there's theft.

Okay.

Because the money is sitting there. Yeah. Pension plans could go away. That's different than your four zero one k. Yeah.

So you wanna make sure your pensions are well funded. But yeah, these are things to understand.

It sounds like if you're gonna do the rule of 55, you have no other choice. That's the only way to do it is with the four zero one k.

You can't move anything else out there. So if you're gonna retire super early Actually, I stand corrected. No. You could move funds into a traditional IRA, and you could use what's called 72 t. Oh.

So 72 t says in one account, you can have structured systematic payments for over ten years and get it out without the 10% penalty, but it's based on the riskless rate. There's a few calculations. Work with the CPA on this one. Make sure your i's are dotted and t's are crossed. You could do it.

It's just very limiting. You won't get as much money out of it. It just it's trickier. The rule of 55 is much easier than 72 t. And if your funds are already in an annuity, you could do 72.

Slightly different, but still tricky.

Okay.

But overall, there's more opportunity or there's more options, I should say. More options could be a good thing. It could be a bad thing. Mhmm. But it's you got more options if you roll it over.

Just make sure you're doing it without creating tax issues. That's all the time we've got for the show today. If you enjoyed the show, consider subscribing to it wherever you get your podcasts. Discover

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