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When you Should NOT Rollover Your 401k/TSP into a Self-Directed IRA
Many advisers automatically suggest that at retirement everyone should exit their employer sponsored plan and immediately invest in a Rollover IRA (with the adviser’s firm).  Yes, you (or ultimately your beneficiaries) will probably be required to take a plan distribution at some point in the future.  This requirement could likely occur at the death of the participant.  Even though many clients might prefer to “get their house in order” and address these issues now while they are focused on planning for their future, there are circumstances where leaving the money in the employers’ retirement plan is a better decision.  These include:

  1. Lower cost fund options at the employer.
    This used to be a bigger issue before low cost Exchange Traded Funds (ETF’s) were included in most advisors portfolios.  For example, the funds offered in the Federal  Governments Thrift Savings Plan (TSP) are actually more expensive than many of the comparable ETF’s available in IRA’s.
  2. A guaranteed stable value fund is an option with your employer that you may wish to keep.
  3. If you leave your job prior to age 59 ½ and need penalty free (10% penalty) withdrawals from your retirement funds.
  4. If you decide to work past age 70 and don’t wish to take your Required Minimum Distribution.
  5. Depending on your state laws, if you face a potential legal claim that could result in claims against your assets.  Some states have limits on the amount of IRA assets that are exempt from creditor claims (such as Virginia), while employer plans are fully protected under Federal ERISA laws.

At PSG, we incorporate all of your assets into our Planning, Management, and Oversight. Moving your employee sponsored retirement plan to a Rollover IRA, is a piece of the larger picture with which we are concerned.

Look for a future article on the circumstances that suggest when an employer distribution would be beneficial
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To contact Don for further discussion you may email him at: dhannahs@psgplanning.com.  Don is a Founding Partner of Planning Solutions Group, LLC.  Starting his practice in 1987, Don has focused primarily on closely held business owner planning.