Many people have changed jobs, gotten laid off or retired in recent months. Now, for the first time, many employers are trying to hold onto their 401(k) participants rather than having them transfer those funds into a personal retirement account, like an IRA, as many people generally do upon separation from a job. How can you tell what the best plan is for you?

What You Should Know

Should I Stay?

If your 401(k) offers investments at a lower cost than an IRA, you should stay with your employer’s plan. Some 401(k)s offer stable-value funds, which are not available through IRAs and many people like the assurance of those terms. Roth accounts offer tax-free withdrawals in the future, but you must pay taxes when you open the account, so this is certainly something to consider. If you believe that you’ll make withdrawals before the age of 59 1/2, staying in a 401(k) is a good idea because it has lesser penalties than an IRA. Additionally, 401(k) accounts are shielded from legal decisions, such as a lawsuit.

Or Should I Go?

IRAs, on the other hand, offer a simple consolidation plan so that retirement savings can be in one account, with easy-to-analyze asset allocation. 401(k)s have fees that are sometimes tricky to decipher over time, so IRAs often pride themselves on no-fee or low-fee deals for people who sign up. And, generally, IRAs are more customizable than a 401(k) group plan. If you are more interested in investment options that you control, an IRA offers flexibility and autonomy that a 401(k) cannot match.

Why the Change of Heart?

Employers want to hang on to their former employees’ money for several reasons. For starters, the larger the firm’s assets, the lower its fees to the various fund firms like Fidelity, T. Rowe Price Group, or Vanguard. The larger the assets base, the more options it has for non-mutual fund-holdings as well. These benefits have always been in place, but until the baby boomer generation began to retire, there was no need to implement aggressive measures to retain these plans. Now, retirees and laid-off workers are encountering long delays during processing or smoke-and-mirrors bargains with a lot of red tape. Even those who have made their decisions are facing hang-ups from outside factors as they try to enact their plans.

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