Who's in control of your retirement nest egg? If you've changed jobs or retired and left assets in an employer-sponsored retirement plan like a 401(k), it's probably not you.
News stories in recent years about individual employees whose life savings were put at risk because of lack of diversification in their company retirement plan have spotlighted the importance of understanding your retirement plan's investment policies.
For many people, their retirement nest egg represents the largest share of their life savings; you owe it to yourself to know how it's being invested and who's in charge of making those decisions.
Employer-sponsored 401(k) plans
When you retire or leave a job, ask yourself: "Do I want to own my retirement plan or merely participate in it?" Employers set up a trust to "own" the assets of their retirement plan; this trust is considered the "owner" of the retirement plan.
If you decide to leave your retirement assets in your employer-sponsored 401(k) plan, you are considered an ex-employee participant — not an owner. This may seem like mere semantics, but it's more than that. For example, assets in a 401(k) plan may be subject to blackout periods and therefore difficult to access.
Individual Retirement Accounts
On the other hand, if you choose to roll your savings into an Individual Retirement Account (IRA), you're the owner of that account — with full rights of access and control of your money.
How does an IRA give you greater control? One way is that IRAs typically offer more investment choices. This broader range of options can provide greater diversification and offers the potential to reduce volatility and risk in your account.
Another important reason to consider an IRA rollover is the wealth transfer planning benefits it offers. Beneficiary options may vary according to the employer-sponsored plan document, and may limit choices.
By contrast, most IRAs offer your heirs more flexibility such as the ability to spread the account balance, and the corresponding income taxes due, over their lifetimes through annual payouts (some conditions may apply).
Deciding what's best for you
Of course, there may also be advantages to leaving your savings in your 401(k) plan. In short, there are many factors to consider when deciding what to do with your retirement savings when retiring or changing jobs. The complex issues and choices involved merit careful thought, as well as advice from a professional financial planner and tax and legal advisors who can help you make decisions aligned with your unique goals. Find an advisor near you to learn more, or ask your Ameriprise financial advisor for a copy of the "Leave it or roll it" paper (24272) for a more complete discussion of the advantages and disadvantages of rolling assets from a defined contribution plan such as a 401(k) plan to an IRA.
Brokerage, investment and financial advisory services are offered through Ameriprise Financial Services, Inc. Member FINRA and SIPC.