Disadvantages of Rolling 401(k) to IRA

Rolling a 401(k) to an IRA is popular but not always the best move. Consider these important pros and cons before making your decision.

Pros and Cons

Advantages of Rolling Over

  • More investment options (stocks, ETFs, bonds, REITs)
  • Potentially lower fees
  • Consolidate multiple old 401(k)s
  • More withdrawal flexibility
  • Estate planning benefits

Disadvantages of Rolling Over

  • Lose Rule of 55 penalty-free access
  • Reduced creditor protection
  • May affect backdoor Roth strategy (pro-rata rule)
  • Some 401(k)s have lower institutional fees
  • Lose access to 401(k) loan provisions

Frequently Asked Questions

It depends on your situation. If you want more investment options and lower fees, an IRA rollover is often beneficial. But if you are between 55-59½ and may need the money, keep it in the 401(k) for Rule of 55 access.