Should you roll over your 401(k) to an IRA?

401(k) or IRA? Here's how to choose
401(k) or IRA? Here's how to choose   

Most workers don't do anything with the money in their 401(k) when they switch jobs or retire. That could be a big mistake.

You may think it will keep your financial life simple, but simplicity may be harder to achieve when you have several 401(k) plans from various employers.

"I'd say 100 percent of the time, when a person has a choice of staying in a 401(k) or rolling to an IRA, they should roll it over to an IRA. You go from a limited investment venue to an unlimited number of investment opportunities that open up," said Peter Mallouk, president and chief investment officer of Creative Planning Inc., recently named the No. 1 fee-only wealth management firm by CNBC.com.

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Here are the main advantages of rolling over a 401(k) to an IRA:

Investment choice. With an IRA, thousands of investment choices are available to you: stocks, bonds, mutual funds, ETFs, REITs, alternative investments. The average 401(k) offers about 20 funds, according to research from the Investment Company Institute and BrightScope.

Flexibility and control. If you find that a fund in your 401(k) is not performing well, you may not be able to find another investment option to switch to as easily as you can with an IRA. The flexibility that you have in trading and changing investments within an IRA makes it easier to tailor your retirement account to meet your investment goals.

Wealth transfer. An IRA generally allows you to name multiple or contingent beneficiaries—or even a trust as a beneficiary. If you're married, federal law says your spouse is automatically the beneficiary of your 401(k)—and your spouse must sign a waiver to let you change to another beneficiary. If you're single and haven't named a beneficiary, then the account will go to your estate.

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Yet there are some other disadvantages that may make leaving your money in a 401(k) more attractive:

Higher fees. IRA investors sometimes pay more fees than they would in 401(k) plans. If you choose more sophisticated investment options, they may be more expensive than your old 401(k) investments. Plus, add up the fees you'll pay an investment advisor or broker to suggest investments, if you don't choose the investments on your own, to see if the benefits outweigh the costs.

What's in your best interest? Unlimited investment choices and the ability to seek advice from a broker or another financial professional can come with some bigger risks. "With a 401(k), you have more protections. You have a plan fiduciary who must operate the plan in your best interest to the extent that they can determine that. You also have regulations on fees so you know the fees on the investment options that are in your 401(k) plan," said Charles Jeszeck, a director of education, workforce and income security at U.S. Government Accountability Office.

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Those provisions could soon govern IRAs too. This spring, the Labor Department issued a proposed rule that would require all advisors who offer retirement advice to put their clients' interests first, which would greatly impact IRA owners and their advisors.

In the meantime, if you are seeking advice from a financial professional, registered investment advisors are already required to follow the "fiduciary standard." Visit the SEC website to check out your advisor.