Should you stay or leave? When does it make sense for retirees to leave their savings in their employer’s plan? And when is it better to transfer the funds to an IRA? When is it good?
I’ve long thought that putting my retirement savings into an Individual Retirement Account (IRA) is a wise choice. I didn’t make a mistake leaving my savings in my employer’s 401(k). But transferring 401(k) funds tax-sheltered to his IRA means you’re in control and should choose the investment options that best suit your situation.
I return to this topic because recent research shows good reason to stick with your employer’s plan. The Pew Charitable Trusts notes that moving funds from a low-fee employer plan (with institutional rates) to a similar investment in an IRA (and higher fees for individual customers) is “significantly more expensive for individual investors. It can be translated into costs, costs that could be eaten.” It contributes significantly to their long-term savings. ”
another research paperEconomists Olivia Mitchell, John Turner, and Katherine Riley strongly advocate that the typical worker maintain a 401(k). A 401(k) plan sponsor is a fiduciary, meaning they have a legal obligation to act in the best interests of participants. Large company plans have lower fees than typical IRAs. A growing number of plans are offering participants the option to turn their savings into a source of income for retirement.
They added that there are situations in which it is beneficial to move funds into an IRA. For example, if your employer’s plan has high fees. Another reason is if you have accumulated several 401(k)s with a previous employer and want to consolidate them. IRAs are more effective for people who need sophisticated financial options.
“IRAs offer many valuable features, especially for participants with advanced advice and investment needs,” Riley wrote. In the blog post summary. “Unless a retiree is enrolled in a very expensive small plan, a person with low/moderate levels of financial literacy may benefit from remaining in her 401(k)s plan after retirement.” Highly sexual.”
By the way, don’t be insulted by being labeled as having low to moderate financial literacy. That’s most of us!
The rationale for following your employer’s plan is better than I thought. That said, it’s troubling that savers are required to do more research to come up with a good answer. There are no easy rules of thumb to follow.
Chris Farrell is a senior economics contributor for Marketplace. Commentator for Minnesota Public Radio.
