Should I move my 401(k) to my new company or do an IRA rollover?

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This is one of the most common questions I get from clients and friends when starting a new job.  While there are many issues to look into, two of the most important are the fees in the 401(k) plans and the investment selections available.

Recently, a study was done by Pension Data Source about the fees in 401(k) plans.  Among other things, the 2012 study found that 401(k) fees in large plans averaged about 1.03% per year versus 1.47% for small 401(k) plans.  The difference of 0.44% can mean hundreds of thousands of dollars to the participant over a lifetime. 

The second item to consider is the funds that are available, and their related fees in the two plans.  I have seen plans from large companies that only give 4 options for investments and small company plans that offer 20 or more options, plus target date retirement funds.  Two of the most common weaknesses I see in plans of all sizes are just having 1 or 2 bond funds to choose from and the use of high-fee, poor performing funds. 

One can’t assume that one employer has negotiated better fees than another company or that because their new company is larger the plan will be better.  It takes some legwork to determine which 401(k) plan is better for you or if you should do an IRA Rollover .  The good news, however, is that you don’t have to decide right away.  If the balance in your old 401(k) is more than $5,000, you can take your time to decide if you should keep the money where it is, use an IRA Rollover or move the money to your new company’s 401(k).


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