401(k) Rollover Questions to Ask

Find out about investment options and fees before moving your money to an IRA.

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Gone are the days when you start working at a large corporation until the day you retire. This is both good and bad, of course. Most employees have less job security and no traditional pension. But on the other hand, aggressive workers are often able to climb up the corporate ladder at a much faster pace.

In this job hopping work environment you will have to decide what to do with your 401(k) each time you change jobs. There are many options when deciding to rollover your 401(k) accounts. Once you feel comfortable moving your money, there are other questions that need to be answered too. Here are four questions you should ask before rolling over your 401(k) plan.

[See 10 Best Places to Reinvent Your Life in Retirement.]

1. What exactly am I rolling my 401(k) over to? When you roll your 401(k) savings over into an IRA you can choose from an assortment of investments. From peer to peer lending with companies like Lending Club to investing in some structured products dealing with real estate, your choices are plentiful. Before you say yes because you were impressed with a sales pitch, make sure you know what you are getting into. Even though an IRA maintains the tax benefits of your 401(k), you can still lose your money very quickly if you don’t pick your investments wisely.

2. Is it easy to withdraw money when you need it? Not every type of IRA allows you to withdraw your money easily. Most IRAs also don’t allow you to take a loan from your plan. Before you open an account, ask about what happens if you need access to the money before retirement.

[See How to Manage a 401(k) After Retirement.]

3. Is the IRA self-directed or managed? Some people roll their assets over to a traditional IRA, but fail to make sound investment choices. If your account is self-directed, you need to pick the investments and make sure the returns and new contributions will be enough to finance your retirement goals.

4. How much are the fees? Many IRAs charge maintenance, trading, management, and termination fees. Before you roll your assets over, make sure you understand the requirements that you must meet in order to avoid any fees. These charges are something you should inquire about before you make the switch.

[See 5 Misunderstood Retirement Rules of Thumb.]

Many people spend too little time choosing the best route for their 401(k) when they change jobs. Make sure the IRA you choose will help put you on the road to financial independence.

David Ning runs MoneyNing, a personal finance site aimed at helping others change their habits for a better financial future. He suggests that everyone to sign up for an online savings account to get more out of our hard earned money.