Where Should I Rollover My 401k? – Money Mailbox

by David@MoneyNing.com · 10 comments

Sometimes, a tempting offer may make you rethink your 401k rollover strategy…
Archie wants to know:

I am seeking for your insight advice to roll over my 401K. I just got lay off two months ago. I am 37 years old with 2 kids. One insurance company, North America, is giving me 11% bonus to my investing lump sum to open an IRA account but have to stay with them 14 years. I do not know if I should invest my money to this insurance company or go somewhere to invest to get more return for my kids later to go to school. Please give me some suggestions as to where should I go to have my money invested and what types should I go base on my age.

First, make sure that they are actually going to invest your money and letting you keep the return during the 14 years that your money will be held hostage. An 11% bonus sounds amazing, but it’s not worth your money if there’s no growth for 14 years. To illustrate this point further, let me give you a reference. 1% annual growth for 14 years becomes 15%, which is much more than 11%.

If they do invest your money, check to see what type of investments is possible within their system. Are there a wide selection of low cost funds? Is the investment decision done for you or do you get to decide every time they buy or sell? And if the decision is made for you, will the choice be made based on your specific situation and needs?

The Risk of Losing it All

Also, 401k funds are yours, and will be yours even if the managing company goes bankrupt. Make sure that this is still true if you roll it over to that insurance company. Since they are offering a 11% bonus, I have a feeling that there’s something fishy behind this. Remember, companies and salespeople are out there to make money. Never trust them when they say they want to help you, because it’s simply not true 99% of the time.

The bottom line is that at first glance, 11% is a huge bonus. In 14 years though, and the incentive becomes minimal. Do your due diligence and make sure you know EVERYTHING. If you are uncomfortable knowing everything you need to ask, I would skip this offer. As the old saying goes, when it’s too good to be true, it’s usually bad.

Some Alternatives

I like simplicity, and one of the simplest way to handle a rollover is to roll it to a traditional IRA. Once it’s rolled over, which is as easy as filling out a form, you can start investing as you did in your 401k. You may need to research a bit on asset allocation, but the basic rules for any investment account applies.

Also check out a post I wrote about some 401k rollover alternatives I considered when I quit my job to pursue my business. Click here to read it.

A Little Note about Asset Allocation Basics

You mentioned that you’d like to know what investments are good for you. A good place to start is the asset allocation article from the government entity, Security of Exchange Commission (SEC). The gist of it is that the longer your time horizon (ie, the younger you are), the more aggressive your investment should be, but head over there to soak up all the details. Start here to read the article.

Got a burning money question you want answered? Don’t substitute my opinion with expert advice, but contact me and I will do my best to give you a second opinion.

Editor's Note: I've begun tracking my assets through Personal Capital. I'm only using the free service so far and I no longer have to log into all the different accounts just to pull the numbers. And with a single screen showing all my assets, it's much easier to figure out when I need to rebalance or where I stand on the path to financial independence.

They developed this pretty nifty 401K Fee Analyzer that will show you whether you are paying too much in fees, as well as an Investment Checkup tool to help determine whether your asset allocation fits your risk profile. The platform literally takes a few minutes to sign up and it's free to use by following this link here. For those trying to build wealth, Personal Capital is worth a look.

Money Saving Tip: An incredibly effective way to save more is to reduce your monthly Internet and TV costs. Click here for the current AT&T DSL and U-VERSE promotion codes and promos and see if you can save more money every month from now on.

{ read the comments below or add one }

  • DeAnne says:

    I retired in May 2012 and have a large amount in my 401k…can I leave it there? Is this recommended? Its paying well, or do I have to roll it somewhere else? Should I leave most of it there and roll some? Thanks DeAnne

    • MoneyNing says:

      Yes you can most likely leave your 401k where it is but whether leaving it or rolling the assets over to another institution will depend on the fund selections and its perspective fees. For most people, it will make more sense to roll everything over for simplification and lower cost but your mileage may vary.

  • David says:

    Move it to an online discount brokerage firm. Make sure you do a trustee to trustee transfer. You DO NOT want the check sent to you. First they might take out taxes before they send it to you and if you want to avoid paying income tax and the 10% penalty you have only a couple of months to get it into an account. If they took taxes out of the money then you would have to make that up and then get the money back with your next year’s income tax filing. Second it would be tempting to have a big pile of cash if you are still unemployed and you might spend it. The best way to do it is to setup an account and then have your old employer send the money directly to your new account.


  • Jill C. says:


    I was asked to leave my job because of medical reasons, this was about 1 year ago. My 401k money is still over there, what do I do with it? Please help.



  • Cd Phi says:

    I would also rather play it safe with a traditional IRA.

  • Marc says:

    I’m an investment advisor and I know that product and company very well. The company is strong, and there is nothing “fishy” about it at all. It may not be the best out there, but it’s quite good. However, it’s important that you consider some things:

    How is this money earmarked? Is it for retirement only? Do you have sufficient liquid cash to be able to commit this money to what is essentially a long-term pension plan? Might you be needing this money in the event you can’t find work soon? Will you be needing it for a child’s college?

    Make sure the person offering this is a real financial planner, and not just a salesperson. If you’re working with a planner, he will have discussed those questions with you. If he didn’t, you need to find someone who will.

    This is long-term program you are looking into, not a mutual fund you can bounce in and out of. If you are able to commit this money for the long term, this is a good (though not the only) way to go. At age 65, you’ll have a reliable, guaranteed, lifetime income that will be as high or higher than any other plan is likely to get you. And your money will be safe. Just be SURE that you get the income rider that comes with it.

    Like David said, make sure you understand everything about the plan before you put your money in. It’s a very good plan for what it is, but if it doesn’t meet your needs, it’s not good for you.

    David, please don’t be so hard on us advisors. I know there are a lot of untrustworthy types out there. But most people would be much better off if they found themselves a good advisor, preferably a series 65 with knowledge of insurance and the markets. A stockbroker or insurance agent usually does not fit this category.


    • MoneyNing says:

      Thanks for your response and your effort in helping Archie try to figure out the options out there. I wasn’t trying to shoot a cheap shot at advisors at all, because like you said, there are many good advisors out there.

      Insurance salespeople though is a different story. I think there are WAY TOO MANY bad insurance reps out there. To be honest, I wouldn’t trust pretty much all of them considering what I know of their commission structure as well as their “investment” knowledge.

  • Michelle says:

    If you used to work at a big company, some of those 401k plans are actually one of the best out there. There’s no rule that says you HAVE to move the funds, so if your plan allows you to just leave it there, then just leave it and be happy with the results.

    • Ruben says:

      In most cases, there is a minimum of 5k for an employees 401k to stay active and avoid being rolled over into an IRA (mutual fund(s)) forcefully, after leaving your job.

  • Mendo says:

    I agree with MoneyNing here. This sounds too good to be true and I would just skip the offer.

Leave a Comment