Staying Put in Your Company’s 401(k) Plan When You Retire

Common knowledge has always been that when a person retires from a company they either take a lump sum check and stick in an IRA or have the company convert their 401(k) into a monthly income check. Either way, they were no longer in the company’s 401(k). According to Jeff Opdyke (free), it may be time to reconsider the status quo.

The article points out the following:

Keeping your nest egg in the company 401(k) can be smart. But make sure your plan offers the following features first:

  • The fees are lower than you’d pay in an IRA.
  • The investment options are as good as — or better than — an IRA’s.
  • It allows for partial distribution of your assets.
  • It allows a nonspouse beneficiary to stay in the plan if you die.

One major con I can see to keeping money in the company’s 401(k) plan is that a retiree may lose the opportunity to pass tax-free income to their beneficiaries through a Roth IRA. Of course, this is assuming that they actually have a Roth IRA for that purpose.

Anyway, the article brought up an interesting alternative for retirees to think about (as if they don’t have enough to think about already). For those who are confused by all this, go see a financial planner who specializes in retirement planning and living.

6 thoughts on “Staying Put in Your Company’s 401(k) Plan When You Retire”

  1. I’ve always converted to an IRA because 1) the fees have been lower (I use Vanguard) and 2) there are more investment choices.

  2. I read this article, and think the author (Jeff Opdyke) is full of hooey. I made some comments at: – Leaving your retirement in a 401k

    But basically, he found that in a very small number of cases, leaving your money in a 401k provided _some_ of the benefits of rolling over into an IRA. The only real benefit mentioned is possibly getting lower fees with some funds. But he failed to emphasize that you are stuck with your plan’s sub-par funds to begin with…

  3. I agree with FMF and srh. For the vast majority of 401k participants it is better to move it out of the company plan. I generally have a lot of respect for the thoughts of Mr. Opdyke, but he is off base here.

    I have seen a trend in the conservative PF media where they are shifting away from traditional strategies. Mr. Clements, for example, has recently (over the past year) shifted away from promoting strict indexing. It will be interesting to see how this new trend affects individual investors over the long term.

  4. The “stretch-out” provision of an IRA is a huge benefit. Many employer plans such as 401k’s and 403b do not offer this. If your non-spouse inherits this employer plan, the plan will “force” the money out. Uncle Sam really benefits in this case as your heirs will pay signifcant taxes.
    If your employer plan offers a “gic” or “stable-value” fund as an investment option-that could be a compelling reason to stay in the plan. Those are just not offered in retail IRA accounts.

  5. Does anyone know about how the Federal TSP compares in this respect? I know that the fees are so low as to be practically nil, and they have a decent – if not extensive – selection of index funds to choose from. Not sure about the other aspects mentioned in the article.

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