Rollovers from a 401(k) plan to an IRA: Weigh these 7 factors first

Investment fees are a big consideration for rollovers, advisors said.

Investment funds in 401(k) plans are generally less costly than their IRA counterparts.

That’s largely because IRA investors are “retail” investors while 401(k) savers often get access to more favorable “institutional” pricing. Employers pool workers into one retirement plan and have more buying power; those economies of scale generally yield cheaper annual fees.

Rollovers to an IRA in 2018 will cost investors an estimated $45.5 billion over a 25-year period due to higher fund fees, according to a study by The Pew Charitable Trusts.

Of course, not all 401(k) plans are created equal. Some have better governance than others, and fees are generally cheaper for retirement plans sponsored by large companies rather than small businesses.

“Are you able to pay less by staying in your 401(k) plan?” said Ellen Lander, founder of Renaissance Benefit Advisors Group. “The larger the plan, the more resounding that ‘yes’ will be.”

The bottom line: Compare annual 401(k) fees — like investment “expense ratios” and administrative costs — to those of an IRA.

Savers may benefit from leaving money in a 401(k) if they’re happy with their investments.

Certain investments — like guaranteed funds or stable value funds, which are kind of like high-earning cash or money market funds — aren’t available in IRAs, Lander said.

But 401(k) options are limited to those selected by your employer. With an IRA, the menu is often much broader.

Certain retirement investments like annuities, physical real estate or private company stock are generally unavailable to 401(k) savers, said Ted Jenkin, a certified financial planner and CEO of oXYGen Financial, based in Atlanta.

Another consideration: While the options may be fewer in a 401(k), employers have a legal obligation to curate and continually monitor…