Many employees who change jobs choose rollovers of their 401k accounts into IRAs rather than leaving them in place or choosing rollovers into their new employer’s 401k plans.

Why Rollovers Are A Bad Idea

Higher fees

In nearly all cases, employees will pay more in fees in an IRA account than a 401k account. IRA account investments are likely to be more expensive since access to only retail mutual fund share classes is generally possible. This is because most IRA accounts are too small to meet lower cost share class minimums. Most retirement plans are able to use the cheapest mutual fund share class: institutional. In addition, there are likely to be annual IRA account fees. Many IRA account holders will experience fees that are 100% or more higher than what they paid in their 401k plan.

Loss of access to certain funds

Because it will likely be impossible for an IRA account holder to meet the minimums for many types of investments, there will be quite a few investment options that IRA account holders won’t qualify for.

Lack of advice

In order to manage costs, an employee may decide to roll his/her account balance over to an IRA account at a discount brokerage firm. Most qualified plan account holders have access to professional advice, generally without charge, whenever they want it. Discount brokerage firms do not provide investment advice.

Loss of protection from creditors

If an individual is sued or subject to debt collection efforts, creditors do not have the right to attach to qualified plan balances. IRA account balances are not afforded the same protection. This is another no-cost form of retirement account insurance that is lost when balances are transferred to IRA accounts.

There are very few compelling reasons for employees to elect rollovers of their 401k account balances from qualified retirement plan accounts. However, there are many investment advisors who encourage employees to do just that. Be sure you share the facts with your employees.


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.