How to Choose the Right IRA to Roll Over Your Old 401(k)

If you have a 401(k)—or similar type of retirement account—with a former employer, you might not know what to do with it.  You have a few options - a popular choice for many people is to roll over their old 401(k) account to an IRA.

Most IRAs are easier to set up than you think; they are often free to set up and transfer.

But, all IRAs aren’t the same. In this article, we’ll cover what you should look for and how to compare providers so that you’re prepared to find the best IRA for you.

What are the benefits of rolling over your old retirement account to an IRA?

There are many perks to choosing a rollover IRA. Here are just a few:

  • Keeping the same tax-deferred asset growth: Like 401(k) plans, IRAs allow your savings to grow tax-deferred.
  • More investment choices: Many IRA providers offer more investment options than a typical 401(k) plan.
  • Potentially cheaper investment fees: Many IRAs have lower investment fees, though this comparison entirely depends on your former employer’s 401(k) plan. It’s worth reviewing the fees side-by-side if you’re considering leaving your 401(k) savings with your previous employer’s provider.
  • No account fees: Most IRAs don’t charge any account management fees (though you can hire a financial advisor who will), whereas many 401(k) providers pass these fees on to employees—not the employers.
  • Consolidating multiple retirement accounts into one place: If you have worked for multiple employers, you may have 401(k) accounts administered by different providers. Rolling them over into a single IRA can be an easier way to manage and track your savings.

There are also a few cons to consider, however. For example, while many 401(k) plans offer loans, you can’t take a loan from an IRA (though you can generally distribute your money at any time, albeit with a potential tax penalty). Also, you are required to take minimum distributions from your traditional IRA beginning the year you reach age 70 ½. On the other hand, you might be able to defer required minimum distributions (RMDs) for your 401(k) past age 70 ½ if you haven’t yet retired.

For a more comprehensive overview, here’s a side-by-side comparison of what to do with funds from an old 401(k)—whether that’s opening a rollover IRA, keeping them put, or transfering to your new employer’s plan.

How do I compare fees within my 401(k) vs. IRAs?

Now let’s talk costs. Deciding on an IRA versus your 401(k) account often comes down to comparing the fees. Here’s a breakdown of what types of fees to look for:

  • Asset Management fees: These are important to review, as they can have a large impact on your savings. Asset management fees are typically calculated as an annual percentage of your portfolio balance. In general, investment managers tend to charge 1% or more, and robo-advisors charge less, from .25% - .89% on average. As a note, Guideline 401(k)s and IRAs do not charge any management fees to a participant’s account balance.
  • Administrative fees: These costs typically cover the administration of your plan. Providers can charge these in different ways, like flat fees or a percentage of your assets. Also, when it comes to 401(k) plans, some employers cover the administrative fees, whereas some pass that cost on to the plan participants. As a general note, most 401(k) plans charge administrative fees,  whereas many IRAs do not. Guideline, unlike many providers, does not charge any employee-paid 401(k) administrative fees.
  • Custodial fees: The custodian, the entity that physically holds your assets, will also charge a fee for their services.  Generally, this fee will be charged as a percentage of assets in the IRA or 401(k) account.  Currently, Guideline covers all custodial fees for its clients.
  • Mutual Fund expense ratios: These charges come out of any mutual fund’s daily gains, or are added to daily losses, for any mutual fund investment you hold in your account.  They are used to pay fund managers and other other expenses to maintain the fund.  Mutual fund costs have been consistently decreasing in recent years, and you can now fund very good quality mutual funds with expense ratios under 0.5%.
  • Mutual fund transaction fees and sales loads: Some mutual funds may charge you a one-time transaction fee or a big commission to the representative who sold you the fund.  Keep an eye out for these types of fees in an IRA or brokerage account. Most 401(k) providers do not have these fees.

How do I compare IRA providers?

First, make sure you find an IRA provider whose fees are straightforward and easy to understand. Flat fees—and not percentages—tend to be easier to calculate and let you know upfront know what you’re getting into.

In current economic times, most people want an IRA provider that has lower fees, which means:

  • Management fees at or below .5%
  • Low administrative fees
  • Low mutual fund expense ratios(majority of your investment funds below .5%)
  • No transaction fees and no loads

Beyond the fees, you want to find a modern IRA provider that will be your long-term partner. You may be saving through your IRA provider for decades, after all.

Look out for:

  • Great customer service: Retirement accounts are complicated, and you’ll have questions from time to time. Be sure to find a provider than has knowledgeable specialists on all things retirement, and who are available to answer your questions quickly, whether that’s online or by telephone.
  • User-friendly website: It’s easy to overlook, but this is a crucial differentiator. When it’s time to transfer, move funds, adjust your portfolio, or take distributions—you’ll be doing this all online. Find a provider with a modern website that’s easy to navigate.
  • Wise selection of investment options: Sometimes less is more - if you are an inexperienced investor, you may want a more limited, highly vetted selection of investments to choose from, instead of having to do the research yourself.

How do Guideline IRAs stack up?

In addition to employer-sponsored 401(k) plans, Guideline offers IRAs for individuals. Here’s what makes our IRAs an industry-leading option:

  • Simple setup: It takes minutes to roll over retirement accounts, check balances, change contribution rates, and more. Plus, there are zero startup costs to rollover your 401(k) account.
  • No hidden fees: We charge just one flat rate every month. Plus, we have low pass-through custodial fee of 0.03%, which equates to 25¢ a month for every $10,000 saved.
  • Low expense ratios: With an average blended portfolio expense ratio of 0.06%, Guideline offers some of the lowest cost investment funds available.
  • Intelligent investments: Choose from 40+ low-cost mutual funds, or select a managed portfolio that fits your retirement goals.
  • Automatic Rebalancing: We buy or sell funds in your portfolio to keep your target allocation on track, at no extra cost to you.

Guideline also uses an independent trust company to provide custodial services. They are responsible for holding your investments, providing an extra layer of governance and accountability.

How much does a Guideline IRA cost?

Our flat fees mean that, after you hit the $10,000 threshold, you won’t pay more as you save more (unlike percentage fees), so your retirement savings can grow even more over time.

  • $2/month for your first $10,000 saved
  • $5/month once you've saved more than $10,000

How to roll over your 401(k) to a Guideline IRA

Ready to start your Guideline rollover IRA? Great! Setting up an IRA with Guideline takes minutes and is free to start. Here are the steps:

  1. Contact a Guideline Customer Success Representative at 888-228-3491 or  [email protected]. They will help you every step of the way.
  2. Open a Guideline IRA.
  3. Contact your previous employer’s 401(k) provider and notify them that you’d like to roll over your 401(k) or other retirement savings account. You will need to complete their paperwork to initiate your rollover. You will use the account information from your newly-opened Guideline IRA as the receiving account to which the rollover should be made.
  4. Once you have successfully requested a rollover, the plan trustee will typically mail a check directly to you or to the custodian.

Be sure to talk to your tax advisor before you roll over your old retirement account. They should advise you about whether your rollover should be made to a traditional IRA or a Roth IRA.

Now that you’re armed with information about IRAs and various fees, we hope you’re equipped to make the right decision with your retirement funds. Happy saving!

Nicolle Willson, J.D., CFP®, C(k)P®

Nicolle Willson, J.D., CFP®, C(k)P®

Head of Retirement Consulting at Guideline. JD, UCLA Law. Certified Financial Planner™. Certified 401(k) Professional™. Previously a financial planner with focus on retirement & estate planning.

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