Should I Roll My Employer Retirement Plan Into An Advisor-Managed IRA?

The answer to this question, like many others in the financial world, is “it depends.”  When you retire, one of the important decisions you’ll face is what to do with your employer-sponsored retirement accounts, such as a 401(k), 403(b), TSP, etc. Some retirees choose to roll their employer retirement funds into an Individual Retirement Account (IRA), often one that is managed by a financial advisor. While this can provide numerous benefits, it also comes with potential downsides.¹

Pros of Rolling into an Advisor-Managed IRA

1. More Investment Options

One of the most attractive benefits of rolling over to an IRA is the vast range of investment choices available. Employer retirement accounts typically offer a limited menu of mutual funds, and you might feel constrained by your options. By moving your funds to an IRA, especially one managed by an advisor, you gain access to individual stocks, bonds, ETFs, real estate, and other alternative investments, giving you more flexibility to diversify your portfolio according to your specific goals and objectives.

2. Professional Management

Rolling your retirement savings into an advisor-managed IRA allows you to benefit from the expertise of a professional who can help optimize your portfolio. Financial advisors can tailor your investment strategy to meet your specific needs, taking into consideration your risk tolerance, time horizon, and retirement goals. With their guidance, you can make more informed decisions about your specific situation, which can potentially help maximize your returns.

3. Consolidation and Simplification

If you have multiple retirement accounts from previous employers, consolidating them into a single IRA can make managing your retirement funds simpler. With an advisor-managed IRA, you’ll have a single point of contact for all your investment decisions and a streamlined approach to managing your portfolio. This can be especially valuable if you want to reduce administrative hassles or keep a closer eye on your retirement savings.

4. Personalized Strategy

An advisor-managed IRA allows you to craft a personalized retirement strategy. Financial advisors can design a portfolio that aligns with your retirement lifestyle, whether that means more aggressive growth early on or a conservative income strategy later. They’ll consider tax implications, inflation risks, and the need for income in retirement, adjusting as your life and goals change to keep you on track.

5. Estate Planning and Tax Strategy

An advisor can also assist with estate planning strategies, such as setting up beneficiary designations, creating trusts, or addressing tax optimization for your IRA. This is particularly important if you want to leave a legacy or minimize the tax burden on your heirs. Advisors may also recommend strategies around optimizing your taxable withdrawals in retirement. This can range from minimizing withdrawals, to Roth conversions, to Qualified Charitable Distributions (QCDs), etc., depending on your specific goals and objectives.

Cons of Rolling into an Advisor-Managed IRA

1. Higher Fees

One of the main drawbacks of an advisor-managed IRA is the potential for higher fees. Many advisors charge management fees, which are typically a percentage of your assets under management.

2. Loss of Certain Employer Plan Benefits

When you roll over an employer retirement plan into an IRA, you may lose certain benefits associated with the employer plan. For example, some employer-sponsored plans offer loan provisions, hardship withdrawals, or creditor protection that may not be available in an IRA. Additionally, if your employer’s plan offers lower-cost investment options or a guaranteed income feature, you might not have the same choices available to you with an IRA.

3. Limited Penalty Free Withdrawals

While you’ll face Required Minimum Distributions (RMDs) from both 401(k)s and IRAs once you reach age 73 (or 75 if you were born in 1960 or after), IRAs do not allow for penalty-free withdrawals for specific expenses such as medical needs or qualified education costs, unlike some employer retirement plans. This isn’t a significant con for most people, but it is something to consider if you need to access your funds early.

4. Other Alternatives

There are other alternatives for rolling over your employer retirement account. The first is you can roll it into an IRA that is not managed by an advisor and manage the investments yourself, which may result in lower fees (depending on the funds chosen). You may also be able to roll your employer sponsored plan into a new employer’s plan (if applicable).

Conclusion

Rolling over your employer retirement account to an advisor-managed IRA can offer a range of benefits, from expanded investment options to professional management tailored to your specific goals and objectives. It can help simplify your financial life and may provide more strategic tax and estate planning opportunities.

However, it’s important to weigh the costs (both management fees and underlying expenses), potential loss of employer-specific plan benefits, and other considerations. This decision ultimately depends on your financial situation, level of comfort with DIY investing, and preference for professional guidance.

Before considering this move, carefully assess your goals and consult with an advisor to understand both the advantages and limitations. Taking a well-considered approach can help ensure that your retirement funds are positioned for long-term success.

¹This article does not serve as a recommendation to roll over assets from an employer-sponsored plan to an account managed by an advisor or as a substitute for a formal recommendation. For specific questions and a formal recommendation concerning whether rolling over assets is in your best interest, please contact your advisor directly to discuss further.