Thinking of an IRA rollver? Think twice

John Turner wondered if he should roll over his federal government retirement account into an individual retirement account. So he called 15 IRA providers to get some guidance.

That may sound like overkill, but Turner wasn’t really contemplating a rollover. He was calling IRA providers to test the truthfulness and value of their advice on rollovers from workplace retirement accounts to IRAs.

Turner, who once worked at the U.S. Department of Labor, is director of the Pension Policy Center, an independent think tank in Washington. The calls were research for a paper on what he calls an “extreme case of bad advice.” Eleven of the 15 companies he contacted advised him to roll over his funds from the federal Thrift Savings Plan (TSP), a move that would have cost thousands of dollars in higher fees over 10 years. Four declined to provide specific advice but pushed the idea that rollovers are desirable.

When you retire or change jobs, you can roll over savings from your 401(k) into a traditional or Roth IRA – and that is big business. Nine of 10 new IRA accounts are rollovers, according to the Investment Company Institute (ICI). Households transferred $288 billion from workplace plans to IRAs in 2010, according to the most recent ICI data – but made only $12.8 billion in direct contributions. And the rollover numbers are expected to swell as more boomers retire.

A rollover can make sense if you’re in a 401(k) plan with bad investment choices or high fees, or if you want to take advantage of the tax features of a Roth. But staying in the 401(k) is usually an option, and often a good one. Big plans can negotiate low fees. And 401(k) plans are subject to the fiduciary requirements of the Employee Retirement Income Security Act (ERISA), meaning they must put the interests of account holders first. Not so with IRAs.

With the TSP, the choice is clear. The plan has a simple set of investment choices and ultra-low fees; its average net expense ratio last year was just under three basis points (a basis point is 1/100th of 1 percent). That’s much lower than most 401(k) plans, which had average mutual fund expense ratios of 58 basis points in 2013, according to the ICI. And IRA expenses are 25 to 30 basis points higher than 401(k)s, according to the U.S. Government Accountability Office.

None of that kept the IRA providers from giving Turner a hard sell. The lesson from Turner’s research is clear: When you call an IRA provider about a rollover, you’re getting a sales pitch, not advice. Learn more.


  1. I’m on my guard for any advertisement about rolling over your “OLD” 401k. As far as I’m concerned, that is a red flag, to watch out for a hard sell, not objective. Next time you see an ad to roll over a 401k, I haven’t seen any yet that don’t call it OLD.

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