If one were to leave [her company] should she keep her 401k as is or roll over to an IRA?
Asking for my friends that got laid off
Hard question! Which, thankfully, is our specialty.
It is crucial that your friend has the following:
With these in mind, some considerations. I’d like to extra super emphasize here that this is not exhaustive, and if you are in doubt, absolutely positively consult with a professional before making a move.
Most people don’t spend a single instant in a given day worrying about “asset protection”. What this really means is that if something financially devastating were to occur to you or your family - for example, a lawsuit (perhaps a frivolous one), a rogue medical bill, or another bad circumstance - an attorney is going to take a look at your balance sheet and make a determination of what assets are protected under the law.
Much more detail available in a great podcast series here.
This one is easy to forget, but perhaps you can remember this bad metaphor I just made up. A 401(k) is like a work party, with booze, sponsored by your employer. Yes, you can get trashed, but realistically your employer is taking steps to make sure its employees don’t do anything incredibly stupid, like vomit, or die. An IRA is like drinking alone at home. You can, ostensibly, do whatever you want.
In more boring terms, a 401(k) will have limited investment options because the sponsor - your employer - does not want you to go do anything stupid with your investments. An IRA is yours and yours alone. You may invest in almost anything, up to and including physical gold, rental real estate, options from newsletters originating in Ft. Lauderdale, etc. There are rules about self-dealing but it’s really a vast world of options, especially compared with the paltry list of mutual funds available in most 401(k) plans.
Two terms apply here that sound way too close to one another: Asset Allocation (AA)Asset Location (AL)
AA: Your investment strategy should be what you want it to be. It ought to match your goals and your risk tolerance. You may have heard the term “60/40”.
AL: Understand the tax consequences of owning what you want to own, in the right locations. Locations might be a Roth IRA, a 401(k), a personally owned brokerage account, or a 529 plan. You’d be surprised how many people ignore this idea.
Both AA and AL are important and easy to mismanage if you have multiple accounts and are not keeping an eye on the relative values of each.
I know that this doesn’t end with nicely buttoned up conclusions, but that’s sort of the point. Every situation is unique and has its own considerations, so there are no universal answers. Sorry!
A great advisor prioritizes his clients’ values and aspirations above all else. My job is to listen, understand, and work alongside you to ensure that your money works for you - not the other way around.