What a 401(k) rollover actually costs you

A rollover moves a workplace retirement balance to an IRA or to a new employer plan. Done as a direct trustee-to-trustee transfer, it should not create a tax bill. An indirect rollover — a check made out to you — withholds 20 percent and gives you 60 days to deposit the full amount, including the withheld tax, from other cash. The hidden cost is fees and lost features. Some 401(k) plans have institutional share classes that are cheaper than a retail IRA. Some also allow penalty-free loans or earlier access at 55 if you leave the job. Rolling out can close those doors. Compare the old plan’s expense ratios with the IRA’s fund list before you sign. A 0.4 percent gap on $80,000 is $320 a year, every year. If the old plan is cheap and you like the funds, leaving the money there is a valid choice. Never roll pre-tax money into a Roth IRA unless you are ready to pay income tax on the conversion this year. Ask the new custodian for a direct rollover form and confirm the check is payable to the institution, FBO your name.