When you leave your job, one of the decisions you may have to make is whether or not you should rollover your 401(k) into a Rollover IRA. The process of rolling over your 401(k)  is easy, so don’t let that be a deterrent, and the benefits of rolling over your 401(k) can be pretty substantial. However, it’s not always correct to rollover your 401(k). It was the subject of my Devil’s Advocate post on why you shouldn’t rollover your 401(k)  but I thought of three more excellent reasons why you might want to avoid, or at least put off, rolling it over.
You Can’t Stay On Top Of The Process
When you rollover a 401(k) into an IRA, the process is simple but you have to stay on top of it. With how chaotic things have been lately, whether it’s the market or with your job, the biggest thing to keep in mind is that you need to be able to complete the process without losing anything. The whole thing should take less than two weeks but if you misplace the check or otherwise forget to make the deposit, you could be in for even greater headaches.
You Can’t Borrow From An IRA
The biggest reason why you shouldn’t rollover your 401(k) into an IRA is because you can borrow from a 401(k) and you cannot borrow from your IRA. With the 401(k), you can borrow funds and pay yourself back the interest. The loan is not as awesome as it sounds, since your money won’t grow (or fall, given our current stock market!), but a 401(k) loan may be better than many other types of loans out there. With an IRA, you can’t borrow from it at all. There is a small loophole that will give you what is effectively a 60 day loan (when you rollover the IRA from one account to another, you have 60 days to deposit the funds, so it’s effectively a 60 day loan) but not something you want to use if you aren’t sure if you’ll be able to pay it back (if you don’t deposit it within 60 days, it’s considered an early withdrawal and subject to taxes and penalties!).
One downside of the rollover process is that your 401(k) plan administrator will usually mail you a check that you have to mail to someone else. It takes a few days to cut the check, it takes a few days to make it to you, and then it takes a few days for you to mail it to your IRA. A lot can happen in that approximately ten business day window, your retirement assets are frozen in time until you get them back in. If the market falls tremendously, you will be happy; if the market jumps tremendously, you’ll be furious. A good way to see when volatility has gone down is by looknig at the VIX , a measure of the trader’s estimate of the market’s volatility over the next 30 days. The higher the number, the more volatile. The current VIX is somewhere in the 50s, which is less than the highs in the 80s several months ago, but more than the 10-20 range it had the last few years (the last time the VIX was this high, it was the dot com boom and bust). Unless your 401(k) is atrocious in fees, which it probably isn’t, or you have some compelling reason to rollover, I’d hold off until the market calms down… whenever that is.
Whether you rollover your 401(k) or wait, either option is better than cashing out.
(Photo: urbandata )