Should I Rollover My 401(k)?

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Reader Jeff is switching jobs and wondering, given the market’s drop the last few months, if he should roll over his 401(k) to a Rollover IRA. His concern is that he’d be “selling low and buying high” in that situation and didn’t know what he should be doing.

I’m not a retirement nor an investing expert but I can say that your biggest concern shouldn’t be the performance of the market, it’s the volatility. With the various indicies gaining and losing large single-digit percentage points on a daily basis, it’s the volatility that is the big concern. A rollover takes time. Depending on how quickly or slowly you, your 401(k) administrator or your Rollover IRA administrator is, you could be left waiting for many days on the sideline as your 401(k) assets as liquidated, transfered to you, then transfered to the Rollover IRA. In that time, the market could go down big, go up big, or go sideways pretty erratically. My point is that the volatility is unpredictable, so on that basis alone, without any other compelling reason, I’d stand pat for now.

The concern that you’re “selling low and buying high” isn’t valid for your 401(k) because there is no concept of cost basis. Your 401(k) grows or shrinks based on your decisions but it doesn’t matter whether, by luck or skill, you’ve doubled it in value. The only thing that matters is how much you withdraw in retirement and that’s taxed as income at your marginal tax rate. How much you contributed plays no factor and there’s no such thing as “profit.”

Unless your 401(k) is so horrible that it’s costing you money, I’d wait. If you’ve got it in your head that you want to take a breather from the market, a horrible idea, you could always execute the rollover and hold onto the check for 60 days before depositing (if you hold onto the check for 61 or more days, it counts as a premature distribution and you’ll be taxed on it plus a 10% penalty). That would put you on the sideline for 60 days, which, again, is something I don’t recommend. Retirement isn’t something you should be tweaking and timing the market with, slow and steady wins the race.

{ 2 comments, please add your thoughts now! }

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2 Responses to “Should I Rollover My 401(k)?”

  1. Jeff Rose says:


    You are dead on. With the recent volatility it has made impossible to not only sell off funds but I have also encouraged a few clients to wait a bit until the market has settled down. Earlier in the year I had a handful of people that had significant rollovers that worked to their advantage. By the time the rollover was initiated, the check was mailed, then received, then reinvested, the market had dropped significantly. In one case I figure it saved the client approximately $20,000. It was pure luck, but he sees me as being the hero. (He said it, not I). I’ve been fortunate to have that have not worked against me yet (knock on wood). The best way for that not to happen is to not rollover in this type of market.

  2. Jared says:

    I am leaving my company and have a (small) 401k loan still in payment. If I choose to leave my 401k with the old employer until the loan is paid off, am I locked in for good? Or, am I able to rollover my 401k anytime after my employment ends?

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