Employees should carefully consider the options for their retirement savings when leaving a job, including leaving it in the old employer’s plan. The fees in that plan may be lower, but you would have to compare. (Some employers will not let you leave your money behind if the balance is small.)
Here are some questions and answers about rolling over retirement balances:
How can I compare fees for different mutual funds?
Typically, you can find a fund’s expense ratio, often labeled “total annual fund operating expenses,” on its management company’s website or in the fund’s prospectus.
The Financial Industry Regulatory Authority, a private group that regulates brokerage firms, offers an online fund analyzer that lets you compare information about different funds, including expenses.
Administrators of 401(k) plans are required to disclose fund fees, but research from the Government Accountability Office suggests many participants have difficulty using the information.
What if my financial adviser recommends rolling my 401(k) over to an I.R.A.?
Ask for the reasoning behind the advice, because advisers may earn fees from managing your money in an I.R.A. As of July 1, advisers must provide written documentation explaining why a recommended rollover is in your best interest, said Nevin E. Adams, a spokesman for the American Retirement Association, an industry group. The mandate is part of rules recently adopted by the Department of Labor.
Are there any drawbacks to keeping my retirement money at a former employer?
You cannot contribute to a former employer’s 401(k) plan, said Heather Winston, director of financial planning and advice at Principal Financial Group. So if you leave it behind, you should contribute to a new account to keep your retirement savings on track. Sticking to an employer plan means you are limited to the company’s menu of investments, she said, while an I.R.A. may offer more options.
Also, it can be challenging to keep track of multiple accounts if you change jobs several times, said Michael J. Garry, founder and chief executive of Yardley Wealth Management. Consolidating them in an I.R.A. can make it easier to make sure funds are correctly allocated among different types of investments.