Skip to main content


Representing Individual, High Net Worth & Institutional Investors

Office in Indiana


Home > Blog > 401K Rollovers: A Dangerous Time for Investors

401K Rollovers: A Dangerous Time for Investors

When you’ve worked for 10-30 years or more with one employer, you can successfully sock away hundreds of thousands of dollars in your 401K. But when your employment ends, you have to make a decision about what to do with your funds.

For many investors, the 401K account is the only investing they’ve ever done. In a typical 401K, the company offers 20-50 mutual funds in which the investor can choose any allocation.  Some investors have never had a brokerage account or relationship with anyone other than their 401K plan. So, why is the end of employment so risky for investors?

Since many investors have no financial advisor to turn to for advice, they get referred to one by a friend at work, church,  or a family member. The friend at work will usually tout a broker who has worked with many other retirees from  the company before, and is really familiar with how to rollover the company 401K into an IRA account. This creates an imaginary feeling that the investor can trust this broker.

For some brokers, they view this situation as shooting fish in a barrel. You have a very unsophisticated investor who is thinking about rolling over a fat six figure 401K account into an IRA. Most investors think that since the employment is ending, they have to move their funds out of their 401K. This is not always the case. But some brokers make you think this is your only option. Why do they do this? Because of the substantial commissions or fees they make off the roll-over and new investments.

But how does this go wrong for some investors? First, since the investor is no longer working, they look to their brokerage account to supplement their other limited income from social security, a spouse’s salary,  or other pensions. Some financial advisors incorrectly tell investors that they can take out 8-12% easily from their IRA account and not lose any principal. This is usually not the case. Academic research has shown that if an investor withdrawals more than 4% of his/her principal, principal may decline over a period of years, and can ultimately run out during the investor ‘s lifetime.

Another problem arises from the types of investments made by the financial advisor. In some instances, the investor is exposed to too risky of a portfolio, i.e. too high of a percentage in stocks or similar equity investments.  Other financial advisors concentrate too much of an investor’s portfolio in insurance products such as variable annuities or illiquid investments like non-publicly traded REITS. These types of investments are almost always unsuitable per se for an IRA account.

What should an investor do to avoid getting taken of advantage of at this delicate time? First, don’t be in any hurry to move out of the 401K  if the employer doesn’t require you to do so. Haste will sometimes lead to bad decisions. Second, check out any financial advisor you are considering. Google his or her name and see what turns up. Check out his/her public record on . Compare brokers like you compare prices at a grocery or retail store,. Interview at least 3 different advisors to find the one you like the best. Ask them how they make their money off of you and your account (then watch some of them squirm).  Finally, watch your account closely and if you see losses occurring that are out of line with your expectations and risk tolerance, tell your advisor to get you out of your investments and into cash. Then try again for a better advisor.

Comments are closed.

« Back to Blog

Top of Page