Commentary · Commentary
Old 401(k)s From Previous Jobs? Compare Your Options Before Moving Them.
Written by the William Allan team · Published
Changing jobs can leave retirement accounts spread across former employers. Those accounts deserve periodic review, but consolidation is not automatically the best answer. Leaving assets in a former employer plan, moving them to a new employer plan, or rolling them to an IRA can each be appropriate depending on the plan and the investor.
Start With the Existing Plan
An old 401(k) may offer institutional share classes, negotiated expenses, ERISA creditor protections, plan-loan features, or withdrawal rules that are not available in an IRA. Other plans may have a narrow investment menu, higher administrative expenses, or limited planning flexibility. The relevant comparison is specific to the actual plan, not to 401(k)s as a group.
Before moving an account, review its investment choices, total expenses, service, distribution rules, beneficiary provisions, and any employer stock. Also confirm whether a new employer plan accepts incoming rollovers.
What Consolidation Can Change
Combining accounts may simplify statements, beneficiary reviews, asset-allocation decisions, and required-distribution planning. An IRA can also provide a wider investment menu. Those potential benefits come with tradeoffs: IRA expenses and advisory fees may exceed the cost of the former plan, ERISA protections generally change, plan loans are unavailable, and certain age-55 withdrawal or employer-stock tax rules may be lost.
Direct ownership of individual securities is one method William Allan may use in appropriate accounts. It is a difference in portfolio construction, not an assurance of lower costs, better tax results, or better performance. Individual-security portfolios can involve concentration, trading, and company-specific risks and may not fit every investor.
The Compensation Conflict
William Allan generally charges asset-based fees for managed accounts. If retirement assets are rolled into an IRA managed by William Allan, the firm and the financial professional servicing the account may earn more compensation than if the assets remain in an employer plan or move somewhere the firm does not manage. That financial incentive is a conflict of interest and should be considered alongside the services, investments, costs, and protections available under each option. The firm's current fee and conflict disclosures are available in its Form ADV and Form CRS at adviserinfo.sec.gov.
Handle the Transfer Carefully
A properly completed direct rollover generally avoids current taxation, but the result depends on the account type and transaction. Indirect rollovers, missed deadlines, required minimum distributions, Roth conversions, employer stock, and after-tax contributions can change the analysis. William Allan can help gather information and coordinate the process, but no firm can guarantee a particular tax result. Consult a qualified tax professional before acting. IRS guidance on retirement-plan and IRA rollovers.
The right decision is the one supported by a documented comparison of the available choices. Convenience matters, but so do total cost, services, investment options, legal protections, tax consequences, and the compensation received by the person making the recommendation.
This commentary is for informational purposes only and is not investment, tax, or legal advice. All investing involves risk, including the possible loss of principal, and past performance does not guarantee future results.