The Top 5 Reasons People Roll Over Their 401(k): Real-Life Examples of Successful Rollovers

The 401(k) retirement plan is an option for many employees who want to save for their future. However, it's not uncommon for people to switch jobs or find better options along the way. When this happens, one option that individuals consider is rolling over their 401(k) into another account. Although you can DIY this move, using a free service to roll over your 401(k) — like that available at Capitalize — is smart and safe. In this article, Benzinga discusses the top five reasons why people roll over their 401(k) and provides real-life examples of successful rollovers so you can learn from them.

Change in Employment

A change in employment is a common reason for people to roll over their 401(k). When you leave your job, you have the option to leave your 401(k) behind or roll it over into another account.

Real-life example: Jack left his job to start his own business and decided to roll over his 401(k) into an IRA. With the IRA, Jack had more control over his retirement savings and could continue to save for his future.

There are free platforms for 401(k) rollovers to consider.

Lower Fees

The first reason why people opt to roll over their 401(k) is to save on fees. While 401(k) plans provide an easy way to save for retirement, they are often associated with high fees that can eat into your savings. Rolling over your 401(k) into an account with lower fees can help you save more in the long run.

Real-life example: Sarah worked for a company that offered a 401(k) plan with high fees. After doing some research, she found an IRA with lower fees and rolled over her 401(k) account. By doing this, she saved a significant amount in fees and was able to keep more of her hard-earned money.

Question: How much did Sarah save? 

Investment Fees: These fees are associated with managing plan investments and are typically assessed as a percentage of assets invested. They are by far the largest component of 401(k) plan fees and expenses. Sarah’s $300,000 balance had been subjected to an annual fee of 3% in her old 401(k); her new IRA charges 1%. That’s $6,000 more each year that Sarah keeps.

Plan Administration Fees: These fees are associated with the administration of the plan and cover expenses such as recordkeeping, legal and accounting services, and participant education. These fees can be assessed as a flat dollar amount per participant or as a percentage of assets.

Individual Service Fees: These fees are associated with specific services, such as loans or hardship withdrawals. They are typically charged as a flat dollar amount.

Answer: Based on her balance, Sarah will save around $6,000 per year with reduced administrative fees. Investors with other balance amounts will also save lots of money based on the change in percentage charged by the administrative team managing your retirement account when you roll over your 401(k).

More Investment Options

Another reason people roll over their 401(k) is to gain access to more investment options. 401(k) plans may have limited investment choices, but rolling over to an IRA can give you more control over your investments.

Real-life example: John had a 401(k) with a limited number of investment options. He wanted more control over his investments and decided to roll over his 401(k) into an IRA. With the IRA, John had access to a wider range of investment options, including crypto offerings, which he used to diversify his portfolio and achieve better returns.

Better Customer Service

People also roll over their 401(k) to enjoy better customer service. 401(k) plans are often managed by third-party administrators who may not always offer the best customer service. Rolling over your 401(k) into an account with better customer service can give you peace of mind.

Real-life example: Olivia had a 401(k) plan with a third-party administrator who was difficult to deal with. She decided to roll over her 401(k) into an IRA with a financial advisor who provided personalized service. With this advisor, Olivia felt more comfortable and confident in her retirement planning.

Simplification

Lastly, people may roll over their 401(k) to simplify their retirement planning. Rolling over multiple 401(k) accounts into one IRA can make it easier to manage your retirement savings.

Real-life story: Emily had multiple 401(k) accounts from previous jobs and found it difficult to keep track of them all. She decided to roll them over into one IRA, which made it easier to manage her retirement savings.

Rolling over your 401(k) can be a smart move for many reasons, including lower fees, more investment options, better customer service, change in employment and simplification. By learning from stories of successful rollovers, you can make informed decisions about your own retirement planning. Remember to do your research and consult with a financial advisor to find the best option for your unique situation.