MONEY MATTERS: Rolling Over Your 401K

Branching off on your own and starting a small business requires a giant leap of faith. Without a doubt, it takes a lot of guts to buck the trend and pursuit individual greatness. But while most entrepreneurs are eager to ditch the formalities of life in a cube, there is one thing you don’t want to leave behind; your 401K.

There are more than a few reasons why rolling your 401K into a regular or ROTH IRA is the way to go.

5 Benefits of a 401k Rollover

1.)    More Investment Options

Even though the 401K is a great tax shelter and a great way to save for retirement, one of its weaknesses is offering only a limited number of investment options, typically carrying a very short list of equity and fixed-income mutual funds. That is barely a fraction of the few thousand that are available through an IRA. Beyond access to the whole universe of mutual funds, you can also purchase individual stocks, bonds and ETF’s in an IRA, giving you an opportunity to invest in your favorite companies and a broader range of investment ideas.

2.)    Lower Fees

Although our consumer instincts don’t typically associate more options with lower fees, in the case of the IRA, that happens to be true. Beyond the cost of execution, the transaction costs associated with buying and selling securities, there are no other additional add on fees for an IRA. That is sharply contrasted to the fee structure of the 401K, where participants are frequently subjected to wrap and 12-1b fees, technical mumbo jumbo for the little guy getting hosed while the guys at the bank shop for a new summer home. The IRA is a cheap way to house and invest your money.

3.)    More Support

Rolling your 401K into an IRA also provides a great platform to access more support for your investments and long-term financial goals. That’s because you can hire a personal investment adviser to help you find unique investment opportunities and manage your account, a relationship and service that is generally unavailable to 401K participants.

4.)    Tax Shelter and Additional Contributions

One of the features that the 401K and IRA have in common is that they both provide a highly effective tax shelter that enables participants to avoid double taxation. But in this instance, the IRA once again races to the front of the pack, because after you leave your day job, you are no longer eligible to make contributions to a 401K plan. But when you roll your 401K into an IRA, account holders are eligible to make annual contributions of $5,000. And in some cases, under certain “catch up clauses,” that number jumps 10% to $5,500.

5.)    Better Access and Execution

While you do have the ability to adjust the holdings in your 401K portfolio, that process is more than a bit cumbersome. Many times, it requires you to log into an unfamiliar web site, submit a request to change your holdings and then continue to log back into that unfamiliar web site for days on end to see if your allocations have been adjusted. Needless to say, it is not a very smooth or transparent experience that leaves you guessing on what prices you bought and sold. The IRA is the exact antithesis, providing both real-time access and monitoring of your portfolio and holdings and the ability to change positions on the fly.

The Takeaway

So if you are one of those ambitious people in the world choosing to leave behind the shackles of the corporate grind, don’t act in haste and forget to take something with you. Roll that 401K plan into an IRA and give your investment account the same kind of freedom and expression that you yourself are looking for.

MONEY MATTERS is a weekly column on the Retail Minded Blog that is contributed by Michael Vodicka, founder of boutique financial consulting firm the Vodicka Group. MONEY MATTERS is Retail Minded’s way of supporting independent store owners with all their financial concerns, real life needs and everyday issues both in and out of their  stores. You can find MONEY MATTERS every Wednesday on as well as in each issue of Retail Minded Magazine.


  • Karie Burquette
    February 28, 2012

    What a fun, completely necessary addition to Retail Minded for small biz owners! Looking forward to more blogs like this. Thanks.

  • Great post, I think it’s an excellent overview for people who are unsure of what to do with their retirement money when they leave their job.

    I have a question though, can you elaborate on the fees? What about fund fees in IRA’s? I wonder if you aren’t careful, you could actually pick up more fees with an IRA than a 401k, especially if you aren’t mindful of the possibility!

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