IRA rollover post preceded by LRPC's Plan Sponsor Insight image.

Recently, I wrote, “Bad Idea: Rolling a 401k Account into an IRA”. There were a number of readers who had comments about this type of IRA rollover. Many of the points raised were good ones deserving a response, which I have shared below.

Why Rollovers Are A Bad Idea

Average 401k balance

The piece was written with the average 401k plan participant in mind. That participant, as of the first quarter 2013, had a 401k plan balance of around $80,000 (please email me if you would like the link to that source). Also, I should have mentioned in the prior piece that I am an advocate for 401k plan participants.

Nowhere to go

Unfortunately, there aren’t many advisers who are eager to work with IRA rollover accounts that contain the average participant balance. As a result, these participants will either pay excessive fees to place their balances with the larger advisory firms or work with discount brokerage firms or mutual fund companies where generally no investment advice is available.

Objectivity: the key to good investment advice

The average 401k plan participant considering a rollover has limited options to source objective investment advice. Advisers at large brokerage firms are conflicted because of their desire to generate transaction fees and sell products that pay them well. Those mutual funds that provide investment advice aren’t objective because they are also asset managers. Very few independent advisers are willing to take on small balance business without substantial fees. However, most retirement plan participants can receive objective investment advice from the advisor attached to their 401k plan – at no cost.

IRA rollover balances too small to meet minimums

Nearly all of the cheapest mutual fund share classes (I am thinking of the institutional share classes) have minimums far in excess of $80,000. Many are $1,000,000 or more. As a result, the average 401k plan participant who rolls his balance into an IRA will often find himself using the most expensive share class – retail. Nearly all retirement plans use institutional share classes. The difference in cost can be 50 basis points or more.

Transaction fees

Brokerage firms are interested in creating transactional revenue. As a result, not only is it likely that IRA rollover account holders are not receiving objective investment advice, but they are also probably incurring transaction fees for purchases and sales. Please keep in mind that most retirement plan participants have access to free, objective investment advice and the opportunity to make purchases/sales and transfers without any transaction costs. Also, keep in mind that the average participant is not interested in rolling over their balance into a mutual fund family where no objective investment advice is available.


There are exceptions to every rule. The prior piece was written to share information that most retirement plan participants should consider when thinking about rolling over their 401k account balances. Most plan participants are not interested in managing their own accounts without help. They are not adept at calculating cost comparisons and would not be well-served by paying the fees required in an IRA rollover account.

As an advocate for retirement plan participants, I am concerned that very little of the information necessary to make a good rollover decision is shared with participants in a manner they can understand. As a result, I believe most participants make a bad decision when rolling over their 401k retirement plan accounts.


About the Author

Robert C. Lawton, AIF, CRPS is the founder and President of Lawton Retirement Plan Consultants, LLC. Mr. Lawton has over 30 years of retirement plan consulting and administration experience and has provided consulting services to many Fortune 500 companies including: Aon Hewitt, Apple Inc., AT&T, First Interstate Bank, Florida Power & Light, General Dynamics, Houghton Mifflin Harcourt, IBM, John Deere, Mazda Motor Car Company, Northwestern Mutual, Northern Trust Company, Trek Bikes, Tribune Company, Underwriters Labs and many others. Mr. Lawton may be contacted at (414) 828-4015 or

About Lawton Retirement Plan Consultants, LLC

Lawton Retirement Plan Consultants, LLC is a Milwaukee, Wisconsin-based independent, objective Registered Investment Advisory (RIA) firm providing investment advisory, fiduciary compliance, employee education, vendor management and plan design services to 401(k) plan sponsors. The firm currently has contracts in place to provide consulting services on more than $400 million in plan assets. For more information, please contact Robert C. Lawton at (414) 828-4015 or or visit the firm’s website at: Lawton Retirement Plan Consultants, LLC is a Wisconsin Registered Investment Adviser.

Important Disclosures

This information was developed as a general guide to educate plan sponsors and is not intended as authoritative guidance, tax, legal or investment advice. Each plan has unique requirements and you should consult your attorney or tax adviser for guidance on your specific situation. In no way does Lawton Retirement Plan Consultants, LLC assure that, by using the information provided, plan sponsor will be in compliance with ERISA regulations. Investors should carefully consider investment objectives, risks, charges and expenses. The statements in this publication are the opinions and beliefs of the commentator expressed when the commentary was made and are not intended to represent that person’s opinions and beliefs at any other time. The commentary does not necessarily reflect the opinion of Lawton Retirement Plan Consultants, LLC and should not be construed as recommendations or investment advice. Lawton Retirement Plan Consultants, LLC offers no tax, legal or accounting advice and any advice contained herein is not specific to any individual, entity or retirement plan, but rather general in nature and, therefore, should not be relied upon for specific investment situations. Lawton Retirement Plan Consultants, LLC is a Wisconsin Registered Investment Adviser and accepts clients outside of Wisconsin based upon applicable state registration regulations and the “de minimus” exception.