RESOLVING THE LEDGER
This is one outlet's own report from CNBC — the article as it was filed.
Millions of people roll money from a workplace retirement plan to an individual retirement account each year — and mistakes can prove both costly and irreversible.
Federal law allows for tax-free "rollovers" at various trigger points, such as a job change or upon retirement.
Rollovers have gotten more common as baby boomers hurtle into their retirement years — the so-called " gray tsunami ."
Investors rolled $682 billion into IRAs in 2023, more than triple the amount from the early 2000s, according to the latest available Internal Revenue Service data . Nearly 6 million people rolled over their money in 2023, up from about 4 million over the same time period.
Nearly half of newly opened "traditional" IRAs, or pretax IRAs, were opened solely with funds rolled over from a 401(k)-type workplace plan in 2020, according to a January paper by Asher Dvir-Djerassi, a fellow at the University of Michigan's Stone Center for Inequality Dynamics.
The IRS issued guidance on Aug. 12 to try to "simplify, standardize, facilitate, and expedite" rollovers, which can be a tedious process in some cases.
There are also pitfalls awaiting investors, according to financial advisors.
"There are pros and cons" to the choice to roll over money or keep it in a 401(k) plan, said Ellen Lander, the founder of Renaissance Benefit Advisors Group, based in Pearl River, New York. "My biggest beef is, I don't think they're discussed enough."
Potential risks include, among other things, tax penalties and higher investment fees that could potentially leave investors with a smaller nest egg, advisors said.
The CFP Board of Standards, the organization that oversees the certified financial planner designation, issued a rollover guide on Aug. 19 that lays out some of the potential traps.
In it, it dispels two "myths": that workers have to roll over their assets when changing jobs, and that investors can undo their decision later.
In fact, a rollover may not be required — most 401(k) plans allow investors to keep money in their prior employer's 401(k) plan.
Data shows that few do so, though. In roughly 77% of 401(k) plans, less than half of retirees keep their assets in their employer plan, according to the Plan Sponsor Council of America, a trade group.
As to the second myth, the decision to roll over money from a 401(k) to an IRA may be "irreversible," the CFP Board guide said.
In most cases, "you can't go back to whence you came," said Brenton Harrison, a certified financial planner based in Nashville.
One outlier is the Thrift Savings Plan for federal workers, according to the CFP Board guide. The plan allows former federal employees to roll funds into that plan, with some caveats . For example, it won't accept a rollover from Roth IRAs, and the worker must have kept a vested balance of at least $200 in the Thrift Savings Plan.
Investors who switch jobs can generally roll an IRA or old 401(k) account into their new employer's workplace plan.
Here are some additional rollover considerations for investors, according to financial advisors.
Yes, you pay fees for your mutual funds, exchange-traded funds and other investments found in a workplace retirement plan or IRA.
Those fees may not be readily evident, since fund managers deduct them automatically from an account rather than having the investor pay directly.
Often, those fees are higher in an IRA relative to an employer-sponsored retirement plan, according to financial advisors.
This is largely because employers that sponsor 401(k) plans can leverage the aggregate buying power of their workers to buy cheaper mutual funds with an "institutional" share class, advisors said. IRA investors don't have such buying power and generally have access to higher-cost "retail" shares of the same mutual fund.
"You go from being an institutional buyer to a retail buyer," Lander said.
A 2022 analysis by The Pew Charitable Trusts, a nonpartisan research group, found that annual fees for median retail shares of stock mutual funds were 0.34 percentage points higher than those for institutional shares in 2019 — a 37% difference.
Investors lose out on the investment compounding of those lost fees — something that can have a "material impact" on growth of one's nest egg, Lander said.
Investors who retired in 2018 and rolled money to an IRA would see an aggregate reduction in savings of about $45.5 billion over a hypothetical retirement period of 25 years due to the fee differential, according to the Pew study.
The Securities and Exchange Commission has an example to demonstrate the long-term dollar impact of fees. It assumes a $100,000 initial investment that earns 4% per year for 20 years.
An investor who pays a 0.25% annual fee versus one paying 1% a year would have roughly $30,000 more after two decades, at $208,000 versus $179,000, according to the SEC.
Of course, this isn't always true. Certain 401(k) plans might have funds with higher fees than comparable funds an investor could find in an IRA.
Flexibility can come in wide varieties — relative to investments and withdrawals, for example.
For one, there are more investment options to choose from in an IRA relative to a 401(k).
Employers curate a limited roster of investment funds for investors in a 401(k)-type plan. About 69% of 401(k) plans offered 25 funds or fewer in 2025, according to the Plan Sponsor Council of America, or PSCA.
Of course, more choice isn't necessarily a good thing. Too much choice could lead to choice paralysis, for example, advisors said.
Having a curated list of investments "takes the burden of self-management" off the investor, Harrison said.
Employers also have a legal obligation, known as a fiduciary duty, to choose investments for their 401(k) plans that are in their workers' best interests, advisors said.
Be aware that a financial intermediary who recommends you roll money from a 401(k) into a particular IRA investment may not be beholden to a fiduciary duty , and may therefor...
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