There are a lot of people out there who have tons of money in their 401(k)s — which isn’t always a good thing.

Fidelity said recently that 55% of its customers who have been retired for one year still haven’t rolled their money over into an IRA from their employer plan.

Other than your mental comfort, there may not be an upside to leaving your money with your employer once you’ve retired. There’s no match, which is one reason why rolling the money out may be a good option. There are typically many advantages to rolling it out that we can help identify.

Three Reasons to Roll Out

I would argue that you can lower your fee structure by rolling it out. Even if you hire an advisor, I believe you can lower your fees by rolling into an IRA.

But even more pressing is your 401(k) doesn’t have options available like an IRA does. With an IRA, you can broaden your asset classes and build protection.

A 401(k) also doesn’t provide you any guaranteed income streams. It doesn’t offer income planning because it’s basically a block of money that doesn’t mention the tax impact it could have on your wealth.

The truth is leaving your money in your 401(k) doesn’t balance anything. It’s a growth model at risk — a dangerous place to be when the market’s climbed so high over the past 10 years. You don’t want to let your money sit there just because it’s easier or feels more comfortable. You’ve got to move to an IRA and access a whole new world of options like asset classes, investments, and building plans into your retirement.

59 ½ Is the Magic Number

At age 59 ½, you’re eligible for an in-service rollover. That means you can stay invested and start moving some of that money out with no penalty. We can move every dollar of it out if you want while still leaving it open so you can keep contributing and getting the match.

That means great diversification. You’re contributing to your 401(k) and getting match from your company, which grows tax-deferred. And you’ve got an IRA, where you can start building a true retirement plan and broadening your investment base.

Roth Conversions

Besides an in-service rollover, another strategy might be that you start taking some of the qualified money you haven’t paid taxes on yet and moving it over to a Roth before you get to retirement. That will help you when it comes to your taxes as you move toward age 70.

All of that is determined by your current income tax bracket along with when in the year you’re planning to retire. If you’re planning to retire in 1-3 years, it could be best to wait and retire halfway through the year. Then you’d have half as much income that year, and you’d make up for it by converting from your 401(k) into a Roth IRA.

Or maybe your spouse decides to retire before you do, and you lose that income. That could be another good time to look at converting.

All these options need to be considered, and you need to engage with an advisor to make them happen. They won’t just come out of the sky at you.

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