Financial Planning 101: What Should You Do With Your Old 401(k) or 403(b)?

I often get the question of what to do with an old 401(k) or 403(b) sitting with a former employer. In short, there are only a few circumstances where you would want to leave it be, but in those circumstances it can be extremely advantageous to do so.
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So, when should you leave the money in an old 401(k) or 403(b) rather than roll it over to an IRA?

• When you’ve left the employer at ages 55- 59 ½
  • In this instance, you can withdraw money without penalty and without having to wait until 59 ½
• When you have appreciated employer stock
  • This is not a common scenario so I’ll save you some headache and not delve into net unrealized appreciation
• When your former employer actually offers a decent plan
  • You may THINK your plan is amazing, odds are it’s not
  • Most plans don’t offer a fund menu that can be molded into a truly diversified portfolio
• Better protection from personal law suits
  • Generally, your assets are safer in a 401(k) or 403(b) plan in this scenario
• If your plan allows for employee loans and you need to access the money you can do so in a 401(k) or 403(b) without penalty

 
Other than these scenarios, I recommend rolling over your nest egg to an IRA with a reputable fiduciary. Just some of the reasons are:

• Flexibility
• Access to a wider range of investment options, not just the 10-15 offered in your employer plan
• Ability to construct a truly diversified portfolio based on your risk tolerance and return needs
• Lower fees
  • Some argue that you can get lower fees in a big 401(k) program, but in my experience many plans are more expensive than you may realize when all expenses are considered. Not just mutual funds expenses, but third party administrator fees, third party transfer fees, and other expenses that are embedded in the plan.
• Professionally managed and re-balanced
  • Most employees must choose their own funds haphazardly and do not re-balance their portfolios consistently

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