What should I do with my 401(k) account after retirement?
Two years ago when I turned 59.5 years old, I rolled over a portion of my 401(k) to an IRA account. I recently retired and my remaining 401(k) account has gained favorably compared to my rollover account. I don't plan to tap in to either account yet until a year later. Should I leave my 401(k) account and roll it over later then? Or are there any better options to invest? It is valued at $220,000.
This is a great question and there are a number of things to consider:
1) What are the overall costs for each account?
2) Although the 401(k) has performed better than the rollover, could this be due to the allocations being different? Are you taking more or less risk in one over the other?
3) Are there benefits to maining the 401(k) account, access to funds, professional management, funds that may not be available outside the plan?
There are several questions that should be answered and the accounts should be reviewed as well. I would highly recommend engaging a fiduciary advisor to review both accounts, the asset allocation, discuss benefits and disadvantages and help you determine the best game plan for you.
First, don't compare rates of return on the two accounts without examining how you are invested. One may be more aggressive or conservative than the other, leading you to compare apples to sausages and coming up with the wrong reasons to favor the 401(k) over the IRA.
Having worked extensively with both types of accounts, I can tell you that most 401(k) products are built for growing and adding to a nest egg, but don't have the right features in place for withdrawing in retirement. Some charge fees for extra checks being sent to you, and most of them do not let you specifiy specifcally which investments to sell when you withdraw.
IRAs, on the other hand, often have checkwriting directly from the account, allow for specific investment sells at withdrawal, can set up automatic RMD distributions when you turn 70.5, and are generally more convenient for withdrawing retirees.
You can keep both accounts, but I'm guessing you eventually will want to streamline your number of accounts. In that case, you will probably end up rolling the 401(k) to the IRA.
A very interesting comparison! Investment choices in a 401k are usually limited, but they’re cheap. Size does matter. The bigger the employer, the more negotiation power, the more robust investment line-up, and the less expense for the 401k. Once coming out of the 401k, you will have unlimited investment choices. However, more choices do not translate a better return. So, you need to compare the investments you have from the 401k to the rollover IRA to see what the problem may be. If you’re unsure, seek a second opinion from an expert who charges an hourly fee to help you figure out the difference. All being equal (both in a tax-deferred account), was the underlying investment cost or the asset allocation design caused one to underperform the other? Then, go from there. Best!
With the transition into retirement what is most important is to begin looking at how you plan on using the funds. I would recommend that you sit down with an advisor and write up a plan. This will help you ensure that your mix of investments is appropriate for your risk and situation. Keep in mind as fast as the markets recovered they can swing back the other way harming your retirement if not well planned out.