Ask Terry Questions 401K benefits vs rollover to IRA account (not just investment choices)

401K benefits vs rollover to IRA account (not just investment choices)

By Terry Savage on December 19, 2017 | Financial Planning / Retirement

Are there any benefits other than investment choices to keeping a large 401K balance at a former employer (at Empower Retirement) instead of a rollover to an IRA at a discount brokerage (Fidelity or Schwab)? Is there protection from creditors, law suit, or such difference? Does a 401K have RDM requirements at 70-1/2? Do RDM withdrawals from a 401K must take a % from each holding in the 401K? I believe IRAs allow you to withdraw the RDM from cash or liquid asset -- is this correct? Any thing else? Thank you.

Terry Says

Whew -- you have a lot of questions and some, not all, are misguided.  So let me start at the start. A rollover to an IRA will give you wider investment choices and that may be helpful.  BUT some 40l(k) plans have a GIC option (an insurance company product inside the plan) which offers a higher interest rate than you could get in a Money Market fund.  It might be worth leaving your money in the 40l(k) to take advantage of this option if you are close to retirement and seeking safety with income. ALL retirement plans -- 40l(k) and IRA -- have Required Minimum Distributions (RMDs) that start at age 70-1/2.  If you have multiple accounts or types of retirement accounts, you can withdraw from one, or more, of them.  It is not necessary to withdraw from each of them -- so long as you take the required amount, which is calculated based on the balances in ALL your retirement accounts. As to security against lawsuits, that's an interesting question with a real distinction.  40l(k) plans have the highest level of security against creditors under the ERISA (retirement security) laws.  But there's a distinction when it comes to IRAs, which are also protected.  Some states do not afford the same level of protection against creditors for IRAs.  If you'd like to read the legal, technical analysis, here's a link to a great article at the website of my friend and IRA expert, Ed Slott, explaining the differences.



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