Rollover the right way

July 10, 2015

A rollover is the transfer of assets from one retirement plan to another.  All rollovers are not the same.  There are reasons for and against rollovers so be sure your move is one that improves your situation.  You can achieve this by addressing the following issues, as we do through our rollover review process.

Opportunity

You first need to have the opportunity to do a rollover.  Self-directed IRAs are often available for transfer depending on the underlying investments.  Employer-sponsored plans are much more restrictive.  Employer funds mostly allow incoming rollovers from IRAs but are much more restrictive when it comes to rolling out. The most frequent opportunity you have with these types of plans is when you change employers.  When you get this chance it is almost best to take advantage of it.  Some employer plans even require you to rollover within a certain period of time.

Many plans allow employees to roll over the assets in their plan while they are still employed, an in-service rollover.  It is important for you to learn the details of what your plan allows for.  Federal Employees with a TSP (Thrift Savings Plan) account are allowed one opportunity to roll over their assets while still employed after they reach age 59 ½.  In-service rollovers allow you to transfer part or all of your vested balance and continue participating in the plan.

Taxes

To avoid creating a taxable event, have assets transferred directly between custodians without taking custody yourself.  Rollovers should take place between accounts with similar tax status.

Investments

A key factor in determining if you should roll over an account is your investment options.  This includes the returns, fees, risk, and liquidity of the investments as well as other issues.  By increasing your investment options you are improving your chances of finding choices that best meet your needs.  If you rely on the advice of a professional you may notice that advisors often neglect to service individual clients in an employer-sponsored retirement plan which means your account could get neglected.

Employer-sponsored retirement plans generally offer a more limited investment selection than most self-directed IRAs.

Fees

Some custodians and investments charge fees for transactions.  Before you make a move you should find out what fees may be involved.  Your administrative costs may also have changed if you left an employer.  

Loans

It is rarely a good idea to take out a loan against your retirement savings but some employer plans allow you to borrow up to 50% of your vested balance.  IRAs do not allow for this feature although they do allow for penalty-free withdrawals for reasons such as a first time home purchase.  If you already have an outstanding loan balance find out the pros and cons of paying off the loan before rolling over your account or if you can roll over only a portion of the account to give you more time.