Should You Keep Your 401(k) When You Retire?

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You’ve probably heard that your 401(k) is a great investment for retirement. After all, a 401(k) offers a host of benefits: You’re able to get the company match, which is free money for you, if you contribute a certain amount. You can benefit from the power of compound interest through substantial market returns. Plus, many 401(k)s are low-cost for retirement savers.

Your options for what to do with your 401(k) during your working years are extremely limited, especially while you’re still working for an employer. But now that you’re retired, you have the option of either leaving your 401(k) where it is or moving it into an IRA. This generally raises two questions: Should you leave the money where it is, or move it? And what’s the upside of moving your retirement money into an IRA if a 401(k) offers so many benefits?

There are three primary reasons why moving a 401(k) to an IRA could make sense for your retirement:

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1. An IRA offers more investment options.

Some 401(k)s have less than 20 investment options to choose from, while most IRAs have thousands of investment options to match your goals and risk tolerance.

Through an IRA, you may also be able to find protected vehicles with a potentially higher return than the stable value option within your 401(k). Let’s say your stable value option is guaranteed to increase at a fixed rate of 3% per year. What if you could find another investment option that produces a fixed return of 5% to 6%? This is something we see often and is an area we are able to help many with.

Even a 2% increase on $1 million in retirement savings could provide an additional $20,000 in returns being added to your account each year. That money is then compounded annually to grow your retirement savings more quickly.

2. You can complete a Roth conversion.

Most 401(k) plans don’t allow for a Roth conversion, and distributions from your 401(k) are taxed at the time you take them. When you roll your 401(k) into an IRA and then convert it to a Roth, you pay taxes on the converted amount now, but future distributions are made on a tax-free basis. Remember, no tax is due when rolling over your funds from your 401(k) to an IRA. The tax consequence occurs when you decide to do a Roth conversion which can be any amount you choose.

A Roth conversion can make sense right now if you believe tax rates will be higher in the future and want to lock in today’s lower tax rates. For example, let’s say you want to convert $100,000 to a Roth this year. If the total tax on the conversion is 25%, you’ll pay $25,000 in taxes today. But what if you wait 10 years to convert? By that time, the account could double to $200,000 — but tax rates may increase to $30,000. In that case, you’re now paying $60,000 in taxes on those funds.

Many retirees see the benefit of doing a Roth conversion now, especially if they have been diligent savers. If you don’t have as much saved for retirement, a Roth conversion may not make as much sense for you because you’ll be able to take withdrawals at a lower tax rate. Retirees with more saved may want to consider a conversion now, especially since Social Security is taxable for many people age 73 and up who must take required minimum distributions (RMDs). If the money is in a Roth, it can help lower your tax burden in retirement.

3. You can get access to professional investment management and financial planning.

Some firms will charge a fee to help with investment management. My advice? Find a financial planning team that does comprehensive retirement planning for a fee of 1% of assets or less. The financial planning firm should provide more value than the 1% fee, especially when they help with areas such as investments, taxes and retirement income. They may also provide guidance on health care, long-term care and estate planning.

While some 401(k) plans may offer the option to work with a financial planner, in some cases this person only manages investments for a much higher cost or the same cost. I recommend working with an independent team who will act in your best interest and provide comprehensive planning.

Remember: You get only one retirement. With a little planning, you can avoid costly mistakes and make sure you have enough money to enjoy the rest of your retirement.

The appearances in Kiplinger were obtained through a PR program. The columnist received assistance from a public relations firm in preparing this piece for submission to Kiplinger.com. Kiplinger was not compensated in any way.

Disclaimer

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

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Joe F. Schmitz Jr., CFP®, ChFC®, CKA®, is the founder and CEO of Peak Retirement Planning, Inc., which was named the No. 1 fastest-growing private company in Columbus, Ohio, by Inc. 5000 in 2025. His firm focuses on serving those in the 2% Club by providing the 5 Pillars of Pension Planning. Known as a thought leader in the industry, he is featured in TV news segments and has written three bestselling books: I Hate Taxes (request a free copy), Midwestern Millionaire (request a free copy) and The 2% Club (request a free copy).

Investment Advisory Services and Insurance Services are offered through Peak Retirement Planning, Inc., a Securities and Exchange Commission registered investment adviser able to conduct advisory services where it is registered, exempt or excluded from registration.