5 Reasons to Consider Rolling Over Your Old 401(k) to an IRA
The most common way Americans save for retirement today is through an employer-sponsored retirement plan, most often a 401(k). But what happens when you change jobs or retire?
In many cases, you’re left with an old 401(k) from a previous employer—and a decision to make.
Should you leave it where it is, move it to a new employer’s plan, cash it out, or roll it over into an Individual Retirement Account (IRA)?
In this article, we’ll walk through five key reasons why rolling over an old 401(k) into an IRA may make sense, along with the options you have when leaving an employer.
Your 4 Options When You Leave a Job
Once you leave an employer and your retirement funds are vested, you typically have four choices:
Leave the money in your old 401(k) (if the plan allows it)
Cash out the account (generally not recommended due to taxes and penalties)
Roll the funds into a new employer’s 401(k) (if permitted)
Roll the funds into an IRA (Traditional or Roth, depending on tax treatment)
This article focuses on option #4—and why it’s often worth considering.
Important note: Pre-tax 401(k) funds typically roll into a Traditional IRA, while Roth or after-tax funds roll into a Roth IRA.
Listen to this weeks episode on: Can I Contribute to My 401(k) and a Traditional IRA in the Same Tax Year?
Reason #1: Greater Control and Simplicity
Once you leave a company, your old 401(k) often becomes an “out of sight, out of mind” account.
You’re no longer contributing to it
Logins and benefit portals may change
Accounts can be forgotten over time
Rolling your old 401(k) into an IRA allows you to:
Consolidate retirement accounts
View everything in one place
Create a coordinated investment strategy
Reduce administrative headaches
In extreme cases—such as company bankruptcies, mergers, or plan terminations—poor recordkeeping or outdated contact information can cause real issues. Consolidation helps reduce that risk.
Reason #2: More Investment Options and Flexibility
Most 401(k) plans offer a limited investment menu, typically:
10–20 mutual funds
A few target-date funds
Limited customization
While some plans are excellent, many offer:
Limited diversification
Higher-cost funds
No access to individual securities
Rolling your money into an IRA opens the door to:
Low-cost ETFs
Thousands of mutual funds
Individual stocks and bonds
CDs and U.S. Treasuries
Customized portfolios
Some 401(k)s offer brokerage windows—but most do not. An IRA provides significantly more flexibility.
Reason #3: Potentially Lower Investment Costs
Investment costs matter—a lot.
Large corporate and government plans often have very low expenses. Smaller and mid-sized employer plans may not.
It’s not uncommon to see 401(k) investment costs ranging from:
0.10% on the low end
1.00%–2.00% or more on the high end
Higher costs act as a drag on long-term returns.
By rolling funds into an IRA and using low-cost ETFs, total investment expenses can often be reduced to around 0.10%, keeping more money working for you instead of going toward fees.
Reason #4: Better Roth Planning Opportunities
Rolling over a 401(k) can unlock powerful Roth planning strategies.
Starting the Roth 5-Year Clock
If you roll Roth 401(k) funds into a Roth IRA and don’t already have a Roth IRA, you start the five-year clock required for tax-free withdrawals of earnings.
Managing After-Tax Contributions
If your 401(k) contains after-tax contributions:
Those funds may currently be earning taxable gains
Rolling them into a Roth IRA allows future growth to be tax-free
This is especially relevant for those using (or considering) the mega backdoor Roth strategy.
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Roth Conversions
Most 401(k) plans do not allow flexible Roth conversions.
Once funds are in an IRA, you can:
Convert pre-tax money to Roth strategically
Control the timing based on your tax situation
Spread conversions over multiple years
This flexibility can be especially valuable in early retirement or lower-income years.
Reason #5: Professional Investment Management and Planning
If you want a financial advisor to actively manage your retirement funds, an IRA is often required.
Rolling your 401(k) into an IRA allows an advisor to:
Design an appropriate asset allocation
Manage investments proactively
Adjust strategy as goals or markets change
Coordinate withdrawals and tax planning
Integrate retirement accounts into a broader financial plan
For many retirees and pre-retirees, this level of coordination is difficult—or impossible—inside a traditional 401(k).
Final Thoughts
Rolling over an old 401(k) into an IRA isn’t always the right move—but in many cases, it offers:
More control
Better investment choices
Lower costs
Improved Roth strategies
Professional management opportunities
In the next article and podcast episode, we’ll cover when it may not make sense to roll over your 401(k)—important considerations you should understand before making a decision.
If you’re 50 or older and want help building a complete retirement plan, check out Retirement Readiness on Demand at retirewithryan.com.
Have a great week, and I’ll talk to you next Tuesday.
Written by Ryan Morrissey
Founder & Principal Advisor of Morrissey Wealth Management
Host of the Retire with Ryan Podcast