Q: I am moving from one company to another and want to know the advantages/disadvantages of moving my 401K to an IRA, versus moving it to the new company. Thank you! (and love the show – we used to listen to Mike every Sunday, now plan our morning around Wes Moss)
A: Thank you for your email and your regular listening of the show.
The main answers to your question is cost and choice.
Although 401Ks are beginning to disclose their fees and expenses better, it is often hard to determine exactly how much you are paying from your investment returns to be invested through your employer’s plan. Often times, the costs inside of a 401K are more than you would incur if you went direct to a discount firm like Vanguard or Fidelity and opened and IRA and invested in low-cost index funds.
Depending on what you are looking for, you might feel like you are limited in the investment options inside of a 401K. The investments inside the 401K are chosen by a trustee within your company and you cannot invest outside of those options. If you open an IRA at a discount firm, you can choose from most any investment including individual stocks, index funds, mutual funds, individual bonds, etc.
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