Why Should I Roll Over My 401-k?

I get this question a lot from clients.  I have a 401-k at my previous job, what should I do with it, should I leave it where it is or should I roll it over to my new job or roll it over to an IRA?  Given the options available, the best solution would be to roll over the 401-k to an IRA.

Growth

When you leave a company, you no longer contribute to the 401-k, likewise the company no longer matches your contributions, that means your investment does not grow as much as it used to while you were working.  Rolling over your 401-k to an IRA will allow you to continue making contributions and help grow your nest egg.

Expenses

401-k accounts have generally high administration fees that are passed on to investors, the reason why most investors don’t pay attention to the fees is because the company they work for typically offers a match and helps offset some of the costs.  Leaving your 401-k at your previous jobs, leaves it vulnerable to expenses that continue to eat at the amount saved, rolling over to an IRA helps you avoid some of these costs by giving you more control over your money.

More Options

401-k options are usually very limited to what the company offers.  There is a huge investing universe and rolling over to an IRA gives you many more investment options, than those available at your company.  The IRA becomes the vehicle with which to invest, in virtually anything, it can be real estate, commodities, stock, bonds, venture capitalism, the possibilities are endless.

Risk Management

Rolling over your funds to an IRA also allows you to use strategies to reduce your overall risk by employing risk management strategies that are not usually available through your 401-k, for example the use of stop losses; a stop loss is an order that tells a broker to sell a security once it reaches a certain price, it can be placed below or above the market price of a security, when placed above  the market price, it allows the client to retain the profits gained once the stock reaches the agreed stop loss price and sold by the broker at that price.  Vice-Versa, a stop loss placed below the market price of the security protects the client from large losses, the stop loss order is activated when the market price of the security reaches the stop loss price, this tells the broker to sell the security and large losses can be avoided.  Risk management strategies can help you retain more of your money when times are great in the stock market and safely reduce your losses when the market takes a downturn. 

If you keep your money in your old 401-k, your money can only grow so much without regular contributions, you have less investment options available and usually have no access to tools to manage market risks and expensive fees that can eat into your savings, or you can roll over into an IRA and have more control in growing your nest egg.  Speak to adviser today about rolling over your old 401-k and happy Investing!

What was your experience rolling over your retirement?  What did you Invest in that was not offered at your company's 401-K? Leave a comment below and best wishes.

Blessings

Bernice

Bernice Njoroge is  a senior financial adviser with Yatalie Capital Management whose main business objective is to create and preserve Investor wealth.  http://myyatalie.com