Retirement Account Rollovers Liquidate Your Holdings

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Ever since I left my job, I’ve been contemplating rolling over my 401k into an IRA (and then perhaps to a Roth IRA, or just leaving it in the IRA) and came to a realization that if you roll over your account, all of your 401k’s holdings will be liquidated. This isn’t a huge revelation, because you can reach it by realizing that your current brokerage will be sending your new brokerage a check, but it’s something I didn’t even really think about when I was researching the process.

This usually isn’t a big deal if you’re invested in mutual funds (and have no psychological attachment to them and their valuations), part of my 401k is locked up in stock positions that are currently in the red (about -4%). So, do I really want to rollover the 401k now or wait until the position improves?

I’m going to let it sit because I have no real pressing need to rollover my assets. The account is still performing well, the funds are up, and I’m happy with the fees and the services in general.

{ 14 comments, please add your thoughts now! }

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14 Responses to “Retirement Account Rollovers Liquidate Your Holdings”

  1. Miller says:

    But couldn’t you just buy the same stock at the same price (given, there is some loss in the transaction) you sell it for? I understand your selling at a loss, but you’d be buying the same number of shares back, so doesn’t this process “cancel” itself out? Also, why is this more a problem for stocks than mutual funds?

  2. jim says:

    It’s the loss of the transaction costs that matters, plus whatever movement it has in the interim.

    It’s only a problem more for stocks because of psychological reasons because people don’t really think about mutual funds in ‘per share’ amounts, just in total amount invested. And usually you don’t have as close a psychological bond with a mutual fund as you do with stocks.

  3. eROCK says:

    Would you have bought into this stock today knowing it’s down 4%? If not, why hold on to them?

  4. wanzman says:

    from everything I have read about finance,it is never wise to invest with your heart. Therefore, holding onto a stock for psychological reasons seems unwise.

  5. eROCK says:

    I agree with wanzman. Actually, what I posted came directly from William O’Neil’s book (recommended by Trader Mike). (O’Neil is the founder of Investors Business Daily)

  6. samerwriter says:

    I’ve thought about this a fair amount (don’t tell my boss I’m thinking of quitting!); in my opinion the drawbacks of a 401k far outweigh any advantages.

    First, you can open an IRA account at any number of institutions and have access to a much broader array of investments. My company’s 401k plan is pretty decent, but we still have access to only about 50 different mutual funds. And while they are generally high quality funds with every major asset class represented, they’re not necessarily the funds I would choose.

    Second, and this again depends on the quality of your 401k provider, there are sometimes extra fees that you must pay. Whether or not that’s a big deal depends on what the fees are of course.

    Third, in my experience dealing with the 401k provider is a pain. Sometimes I have to deal with people at my company. Sometimes I have to deal with the 401k administrator. There’s a fair amount of finger-pointing and phone-tag. With my IRA if I have any questions I can call Vanguard and get a knowledgeable representative on the phone quickly.

    Lastly, and this is less of an issue now that the Pension Protection Act has passed, an IRA provides for much easier transfer in the event of death.

  7. Foobarista says:

    An aside: once I had a 401K sit untouched, and my old employer went Chapter 7 (common problem with small startups.) My 401K got stuck in the bankruptcy proceedings. I eventually got all my money out, but it was stuck there for several months.

  8. King Asa says:

    I believe that you have thought about this in the past in this post…

    It’s similar to the liquidation situation you are talking about here.

  9. Mike says:

    Rolling it over to an IRA would be a “lateral move”. You’d end up with the same exact position you were in, unless you chose different investments. Unless you have a lot of very small individual stock holdings (in which case you’d probably be better off with a mutual fund), the transaction costs should be negligible, and under the covers mutual funds are charging you those transaction costs as part of their annual expenses anyway.

    The main reason for rolling it over is control and safety–a 401(k) is really controlled by the employer, and if they go out of business you could find it hard or impossible to get your retirement money. Rolling it over to an IRA eliminates that risk.

    The only good reason I can think of for keeping your money at an ex-employer is if their investment options are somehow superior to what you can get in an IRA, and I think that would be a pretty rare circumstance since you can invest in just about anything with an IRA. Even with that circumstance, the added risk may outweigh the benefit.

    Being down or up in your positions really should not matter, since again you’d end up exactly where you were after the transfer is complete.

  10. J bay says:

    Have you considered all the tax implications/(tax benefits or losses) of selling at the loss and reinvesting in the same thing through an IRA. I’ve been investing for the last four years and started right after the bubble. I lost about 2,000 dollars in value in the beginning. When I had a stock I was lossing in and I wanted to get rid of it for something better I calculated the taxable amount that I’d receive back from the government and sold that portion of the position. I use this strategy whenever I’m in a position I know I shouldn’t be in. “never lose your money” (Warren Buffet). I’ve now doubled my original portfolio without making anymore deposits into the account than what I started with.

    All I’m saying is that you might have tax benefits up front by changing the account, plus your probably at a lower tax bracket now then you will be in the future. In addition the market has had many analyst downgrades this month since we’ve had such a strong rally. Feb is right around the corner and you could use the tax reimbursment to buy stocks at a discounted price. Just some thoughts.

    Warren Buffet is my hero also.

  11. MoneyFwd says:

    I had the same thoughts a few days ago when my money from my employer’s match (in a holding account) was distributed amongst every option they offered. I decided it would be more convenient for it to be in an IRA, I had more options, and when I move again in a few years I don’t need to contact my old company and go through a hundred phone calls to get my information changed.

    But if you’re happy with it, it’s growing, and there’s no pressing need to move it, I would probably keep it there for a while longer.

  12. Scott says:

    Advantages of a 401k over an ira:

    1. you can set aside more money in a 401k if you want/care to….. 4,000 vs 15,000.
    2. you can take a loan from a qualified plan.
    3. use of 72T premature distibution without 10% penalty at age 55.


    1. no control over investment options within the plan
    2. no knowledge of costs of the plan
    3. inability to control distributions/taxes at your death.
    4. inablity to convert your plan to a roth ira
    5. fewer investment options than an ira

    there are more of course, but they are very technical and beyond the scope of the discussion here.

  13. Scott says:

    Roll or not to Roll…….

    Reasons to roll over plan assets to an IRRL:

    1. wider array of investment choices with IRRL, 401k limited to what the company puts in the plan.
    2. Better knowledge of costs associated with IRA, what are the costs of a 401k?
    3. Better control of taxes and distributions while living and at death, 401k distributes immediatly at your death, iras do not.
    5. ability to stretch your IRA to future generations….401k’s cant do that.
    6. conversion to a roth if you want……401k’s can not convert.
    7. chance of employer plan losing communication with you ( move, buyout).

    Looks like you should roll. as for the stock being down 4%, sell and then rebuy if you like it so much. Hope it isn’t comapny stock, that is not advisible.

  14. Michael says:

    I believe you can do a 72T from an IRA at any age, but it must continue for the greater of 5 years or age 59.5

    There is an age 55 provision for withdraw for 401(k) separate from 72t.

    As always, consult a tax professional BEFORE rolling over or distributing early.

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