The Pros And Cons Of Rolling Over A Company Plan

The Pros And Cons Of Rolling Over A Company Plan

| July 10, 2023

When a person retires with a company plan, it’s important to know the pros and cons of rolling over to an IRA versus leaving it in the plan. And you won’t come up with the same answer for everyone.

For example, if you retire between the ages of 55 and 59 1/2, and you need to take money out of your retirement plan to pay off your mortgage, in most cases it would be far better to leave your money in the company plan, at least until you take this withdrawal. This is because you can pull the money out without a 10% penalty, unlike an IRA.

Or, if the person is planning on getting new employment, they may want to leave the money in the company plan so they can roll it over to the new employer’s plan. In most cases this would allow them to delay required minimum distributions while they’re still working.

Also, if the person has access to good investment advice through their company plan or makes their own investment decisions, generally the fees on the investments are going to be lower than buying the same type of investments in an IRA through a financial advisor.

Company plan assets also receive federal creditor protection whereas state law protects IRAs, with some states offering little or no creditor protection for things like lawsuits, divorce, and other creditor problems. If your state is weak on creditor protection and you have legal or creditor problems, you may be better off leaving your money in the company plan.

On the other hand, doing a rollover to an IRA allows the person to have a much broader choice of investment options to choose from rather than being stuck with a limited number of investments offered by a typical company plan.

And in most cases ex-employees generally receive far better service and more professional advice from financial advisors compared to some inexperienced phone representative where the company plan has been outsourced to a third party.

For the charity minded, a qualified charitable distribution is a way to take part of your required minimum distribution tax free if you’re giving the funds to charity. Remember if you don’t itemize, your charitable giving is no longer deductible, but the QCD creates the same end result even if you don’t itemize. This powerful tax advantage can only be made from an IRA, it’s lost if the funds remain in your company plan.

The IRA is also a handy place to consolidate and simplify all the different retirement accounts into one IRA or perhaps one IRA and one Roth IRA. This is a huge advantage in a situation where the person is having to keep track of several retirement plans, along with the beneficiary withdrawal options on each plan, the statements for each plan, the passwords for each plan, and so on.

Lastly with company plans, in most cases, employees have to take their required minimum distribution from each plan separately, whereas IRAs can be consolidated for calculating RMD’s, which can really help simplify the process. For example, IRA owners can take their RMD for all of their IRAs from just one of several IRAs.

So, if you’re in the valley of decision on whether or not to roll your company plan over to an IRA, start by reviewing this list of pros and cons, and then perhaps talk with a professional financial advisor, who can help you to make a decision based on what works best for you.

This article is for informational purposes only. This information is not intended to be a substitute for specific individualized tax, legal or investment planning advice as individual situations will vary. For specific advice about your situation, please consult with a lawyer, tax or financial professional. The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation.