Quick Summary

  • When deciding where to do a 401k Rollover, you’ll want to look at 1) fees, 2) investment choices and 3) customer service.

First, you’ll need to decide if a 401(k) rollover is right for you. But once you’ve decided to move your money from an employer controlled 401(k) to an IRA that you control yourself, you should consider the three following question areas:

  1. Does your new provider offer low costs?
  2. Are there good investment options available?
  3. Will they provide help during the rollover process?

Low Cost Rollover Options

Investment costs can eat away at your savings. And while the magic of compound interest can really help your money grow, it works just the same with costs. Even worse, with most investment fees, you never see them. The management fees just get deducted from your account. You don’t get a bill and you probably won’t even see the money taken out. It just kind of disappears. On the high end, a financial planner might take 1-2% of your savings every year.

The good news is that there are plenty of low cost options and the costs just keep coming down every year. Big funds and ETFs (exchange traded funds) can now have annual costs of 0.15% or even lower. For example, Fidelity offers 17 funds that have an expense ratio of 0.10% or less.

These differences may sound small, but they really add up over time. For example, if you take a $5,500 investment in an IRA and put it in a low-cost Fidelity fund vs. paying 1% a year in fees, 20 years later you savings will be more than $3,000!

IRA Investment Options

The next important consideration is finding somewhere with good investment options that work for you. This is rarely about the number of choices these days. Most brokerages offer a wide range of options. For example, E*TRADE offers more than 9,000 mutual funds and that’s before every stock and option that trades on the major exchanges.

The real question becomes how you narrow down these options and find the right fit for you. For many people, Lifecycle funds are a great choice. With a Lifecycle fund, you chose a fund based on what year you want to retire. The fund then does the rest. It automatically chooses investments for you, rebalancing over time as you get closer to retirement.

For example, you may have more equities when you are twenty years from retirement since they have better returns on average. As retirement approaches, the fund will shift to lower risk investments to preserve your return and start providing income.

While Lifecycle funds have a professional fund manager deciding when to rebalance, a new class of “Robo-Advisors” rely on sophisticated computer algorithms to manage your portfolio. The best known of these, Betterment, will ask a few questions about your particular situation and then build a custom portfolio that they think will perform best for you.

Rollover Customer Service

The actual process of doing a rollover isn’t quite as complicated as it might seem, but it can still be a bit confusing at times. Ideally, you’ll do a direct rollover where the money just transfers directly from your 401(k) provider to your new IRA account. But, frequently, there can be complications or confusion along the way.

In these situations, you want to make sure that there is someone to help you with your rollover that is watching out for your best interests. First, if you are dealing with a financial planner or advisor, make sure that they are acting in a “fiduciary” role. This means that they are putting your interests first and must help you find the best investments possible. While there are some new regulations from the Department of Labor to help, this isn’t always the case.

Many of the big brokerages also have special rollover help desks that can guide you through the process and assist you when you get stuck. Fidelity has rollover specialists that will perform a complimentary, one-on-one portfolio review. Look, most companies really want to manage your rollover account so make them earn it!

Compare Popular IRA Providers

Provider Fidelity Investments Merrill Edge Betterment
NameFidelity Roth IRAMerrill Edge IRABetterment IRA
DescriptionGet a range of investment choices, tax advantages and 1:1 help with a Fidelity Roth IRA Learn MoreGet up to $600 when you invest in a new Merrill Edge IRA. Plus one-on-one guidance, actionable insights and easy-to-use tools. Learn MoreRollover a 401(k) or IRA or open a new IRA. Low fees, Rollover Concierge, personalized portfolios, and access to licensed financial experts. Learn More
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