401(k) Plan After Retirement – (Q & A)

May 2016


Q Dear Rick:
I would like to get your thoughts on what to do with my 401(k). I recently retired and I’m not sure what I should do with my 401(k) Plan. The question is should I leave it where it’s at or should I move it into an IRA. I’m curious as to what things I should be considering. I have enough money outside of my 401(k) to cover my living expenses. I plan to collect Social Security in a few years when I turn 70. My goal with the 401(k) Plan is to let it grow for as long as I can. I don’t think I will need it for at least 15 years. I hope you can give me some advice.

A Dear P.W.:
First I want to congratulate you for retiring and for having a strategy that will last you the rest of your life. I also love the fact you are delaying Social Security and thinking long term. Unfortunately when most Americans retire, they don’t have a game plan and certainly aren’t looking long term.

With regard to whether you leave your 401(k) Plan with your employer or directly transfer it to an IRA, here are some of the main issues I would consider. The first would be the investment options you have through your employer. Do you have sufficient investment options and the flexibility to move the money around to fit your situation? Some 401(k) plans have very limited investment options while others have a wide variety of options. If you transfer the money into an IRA by using companies such as Fidelity, Vanguard or Charles Schwab, you would have an unlimited number of investment alternatives.

The second issue would be the fees involved. You should do some research to determine what fees you are paying on your 401(k) Plan. Sometimes the fees are not easy to find, but unfortunately, they’re there. Fees don’t always show up as a line item on a statement that you can easily see. Many times the fees are buried within the investment itself. Therefore, it’s important to look at the prospective of the different investments to help you determine fees. In an IRA you can have more control over your fees by using low cost-no commission investment products.

Another issue is whether you plan to do any Roth conversions. If you plan to take advantage of a Roth conversion, and in your situation I would recommend you consider it, the money has to be in the IRA as opposed to the 401(k). You cannot convert directly from a 401(k) plan.

You also want to consider the flexibility you have within the 401(k) Plan. For example, can you take distributions on an as-needed basis, or does the 401(k) Plan have some restrictions. Once again, if you use an IRA at Fidelity or Schwab or one of those companies, you typically have no restrictions as to accessing your money.

On the whole if you were moving money into companies like Fidelity, Schwab or Vanguard I would generally say you would do better in an IRA versus a 401(k). On the other hand, if you‘re moving the money into high-commissioned investment or investments with backend penalties such as variable annuities, I would then recommend you leave it as is.

Once again, congratulations on being able to retire, and as far as I can see, you can have the strategy and resources to have a quality of life for the rest of your days.

Good luck!
Rick is a fee-only financial advisor. His website is www.bloomassetmanagement.com. If you would like Rick to respond to your questions, please email Rick at rick@bloomassetmanagement.com