Henry L. from Murfreesboro, TN asks: I retired two years ago and just left my 401(k) in my old company’s plan. It’s been doing well, and I’ve had no issues. But, my son keeps telling me I should roll it over into an IRA so I can have more control. I’m wondering why I should be fixing something that’s not broken. What do you think?

Mitch’s Response: Thanks for writing, Henry. We actually encounter this question quite a bit, so I’m glad you asked. I’ll tell you right off the bat that I’m going to side with your son on this one. In my opinion, when a person leaves a company they should take their retirement plan with them. Done right, taking control of your 401(k) can result in better investment choices, lower fees, more transparency, easier access and control, and hopefully better overall performance. I think investors generally want all of those things – I know I would.

Let me hit these points one at a time.

  1. Better Investment Choices – company 401(k) plans generally have a set amount of investment choices, whatever the plan provider/administrator has selected for the plan. So, in many cases, plan participants (like yourself) can only build an investment portfolio out of the options available. That can mean not having access to certain asset classes or strategies, paying relatively higher fees for the funds in the plan, and so forth. When you rollover your 401(k) into an IRA, you can change that investment landscape completely. You can give yourself access to a much broader universe of investment options, which can mean giving yourself access to lower fee strategies with better long-term performance than the ones in your 401(k) plan – a win-win. Imagine trying to build something and only having 3–4 tools in your toolbox, versus having a full set of 30 tools to do the same job. The more options you have, the more effectively and efficiently you can arrive at your goal.
  2. Lower Fees – who knows, maybe your 401(k) plan currently has plenty of low fee investment options available. And that’s great. But many don’t, and as long as investors stay in their old 401(k) plans, they generally cannot control what they pay in fees. They are at the mercy of whatever investment options are available, and what the expense ratios of those options are. There is also a matter of administrative fees that many 401(k) plans charge. A great way to know where you stand is to have someone here at Zacks Investment Management do an analysis of your 401(k) plan options and show you how the fee structure lines up with other options. Feel free to call one of our Wealth Management Advisors at 1-800-701-9830.
  3. Access and Transparency – getting someone on the phone or conducting operational tasks like making a withdrawal or a change, can often be an arduous process within a company 401(k). Rolling over your 401(k) can often mean getting a primary point of contact that can handle all of your needs, and it can also mean having your reporting and operational tasks handled by a dedicated team at a custodian like Charles Schwab or Fidelity, for instance. I find that the online platforms and accessibility at custodians we use here at Zacks Investment Management are far superior to most of the 401(k) plan administrators out there.
  4. Better Performance – it is not possible to quantify whether your performance can improve with a rollover and by how much. But, rolling over your 401(k) can mean having access to managers that have demonstrably delivered better long-term performance than the options available in your 401(k).

I generally agree with the old philosophy of “if it ain’t broke, don’t fix it.” But if something can be made better, than I’m an advocate for change. And in my opinion, a 401(k) can usually undergo several improvements when rolled over into an IRA, if done right. It may be able to afford you all of the benefits listed above.

As I mentioned above, one potential benefit is better performance that generally comes with managers that have demonstrated long-term performance. Here at Zacks Investment Management, we have a track record for success with three of our investment strategies ranked in the top of their respective investment strategy classes by Morningstar. Today, I would like to offer you and other readers a look into these three strategies and two more of our top performing strategies. These five strategies make up what we call “Our Dean’s List of Investment Strategies” as they have been placed in the top rankings out of hundreds of equity managers in the Morningstar Equity Universe. To learn more, download our Dean’s List of Investment Strategies by clicking on the link below:

Disclosure

DISCLOSURE

Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. Zacks Investment Management, Inc. is a wholly-owned subsidiary of Zacks Investment Research. Zacks Investment Management is an independent Registered Investment Advisory firm and acts as an investment manager for individuals and institutions. Zacks Investment Research is a provider of earnings data and other financial data to institutions and to individuals.
This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. Do not act or rely upon the information and advice given in this publication without seeking the services of competent and professional legal, tax, or accounting counsel. The information contained herein has been obtained from sources believed to be reliable but we do not guarantee accuracy or completeness. Publication and distribution of this article is not intended to create, and the information contained herein does not constitute, an attorney-client relationship. No recommendation or advice is being given as to whether any investment or strategy is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole.

Returns for each strategy and the corresponding Morningstar Universe reflect the annualized returns for the periods indicated. The Morningstar Universes used for comparative analysis are constructed by Morningstar (median performance) and data is provided to Zacks by Zephyr Style Advisor. The percentile ranking for each Zacks Strategy is based on the gross comparison for Zacks Strategies vs. the indicated universe rounded up to the nearest whole percentile. Other managers included in universe by Morningstar may exhibit style drift when compared to Zacks Investment Management portfolio. Neither Zacks Investment Management nor Zacks Investment Research has any affiliation with Morningstar. Neither Zacks Investment Management nor Zacks Investment Research had any influence of the process Morningstar used to determine this ranking.

Questions posed are for demonstrative and informational purposes only and may not reflect the views of current clients or any one individual