It’s conventional wisdom to roll over your assets from a 401(k) plan into an Individual Retirement Account (IRA) whenever you leave a job. However, depending on your personal circumstances, as well as some big changes to retirement plans that Congress and the Trump administration have been considering, it might be smarter to simply leave the money where it is or move it to a new employer’s 401(k) plan. Here’s how to decide…

The Rollover Dilemma

The rollover of 401(k)s to IRAs accounted for more than 95% of the $2 trillion in total IRA contributions last year. But it also has led to accusations that investors are being coaxed into costly IRAs unnecessarily. The US Labor Department has launched an ­investigation into whether Wells Fargo & Co. made inappropriate recommendations to get participants in low-cost 401(k) plans to roll over assets into IRAs with big up-front fees.

The biggest knocks against keeping your money in an old 401(k)—high fees and limited investment choices—actually have diminished. Annual fees for 401(k) plans, including administrative fees, have dropped an average of nearly 15% since 2009. And 40% of all plans now offer “brokerage windows” with as many investment options as an IRA.

When To Keep Your Old 401(k)

If your employer offers 401(k) investment options that you like and that are low-cost (the average expense ratio of the mutual funds in the plan is 0.8% or less), it may make sense to stay put, especially if you can’t re-create your portfolio in a brokerage IRA for less. Large employers often have the bargaining power to negotiate with investment providers to offer “institutional” shares of mutual funds that are cheaper than the “retail” versions available in brokerage IRAs.

Additional reasons to consider keeping your old 401(k)…

Your 401(k) offers a self-directed brokerage window. How it works: You get access to a major brokerage such as Fidelity, Charles Schwab or TD ­Ameritrade, allowing you to choose from thousands of funds. Although you typically are charged an annual fee of around $50 to use the window, it gives you access to many investments not traditionally available in 401(k)s.

You may need protection from creditors and legal judgments. That’s especially important if you’re a professional such as a doctor or lawyer. 401(k)s are protected by federal law and can’t be touched by most creditors, even if you declare bankruptcy. Although a rollover IRA carries the same protection from creditors if you declare bankruptcy, it typically has much less protection in nonbankruptcy situations. If you lose a civil lawsuit in a malpractice case or because you injured someone, individual state laws determine whether creditors can go after your IRA accounts. For example, in nonbankruptcy proceedings, California protects only enough of your IRA assets that a judge deems is necessary to support yourself when you retire.

When To Shift to a New 401(k)

Many employers let employees transfer old 401(k) assets to their 401(k) plans. Here’s why it might make sense…

Your new employer’s 401(k) plan offers better features, investment options and fees than the old one. You need to analyze each plan’s “summary annual report” to compare details. You also can benefit from the simplicity of tracking all assets in one plan.

You are planning to retire early. Normally, you must wait until age 59½ to make any withdrawals from a traditional 401(k) or traditional IRA—or withdrawals of profits from a Roth 401(k) or Roth IRA—without a 10% early-withdrawal penalty.* But if you leave your job at age 55 or later, the IRS allows you to start taking withdrawals from either type of 401(k) without a penalty. This applies only to a 401(k) at your current employer. (For a Roth 401(k), you must have started contributing at least five years earlier to qualify.)

You plan to work past age 70½. Normally, at that age you must start taking required minimum distributions (RMDs) from your traditional and Roth 401(k)s and from traditional IRAs. But if you are working for an employer where you currently have a traditional 401(k) (which may include 401(k) assets from a prior employer’s 401(k) plan) and you don’t own more than 5% of the company, the IRS gives you a break. It doesn’t require you to start taking RMDs for the traditional 401(k) until April 1 of the year after you retire, although you still must take RMDs for a Roth 401(k) starting at 70½. That means you can allow the assets to grow while postponing the tax bite that comes with RMDs.

New development: The Treasury Department is reviewing RMD rules to see whether investors could be allowed to start RMDs later and/or RMDs could be reduced once they start.

When To Roll Over a 401(k) to an IRA

About 62% of employees roll over their 401(k) assets when they leave a job. If you work for a company with fewer than 100 employees, investment choices in the 401(k) typically are very limited and administrative expenses are high, making a rollover to an IRA a more attractive option. Another reason to consider a rollover…

You need a steady income in retirement. While all 401(k) plans let you take distributions once you retire, many limit you to quarterly or annual withdrawals, making it difficult to customize an income stream that, say, fits your monthly budget. An IRA gives you flexibility to make your withdrawals at any time.

How New Rules May Enhance 401(k)s

The Trump administration and Congress are considering significant changes to 401(k) plans. New rules being considered now…

Pooled 401(k) plans. Congress wants to allow small businesses across different industries to come together to form multiple-employer 401(k) plans. These large plans would be far more cost-effective and have lower administrative fees and investment costs. Separately, President Donald Trump has directed the Treasury and Labor departments to consider adopting new rules to accomplish this.

401(k) annuities. Only about 9% of 401(k) plans now offer annuities, which provide pensionlike monthly payouts when you retire in exchange for a lump-sum initial payment. Annuities can help solve the challenge of creating a steady and reliable income stream in retirement. Congress wants to promote annuities by requiring 401(k) plan sponsors to show, in quarterly statements, how much income could be generated from an annuity.

*With a traditional 401(k) or a traditional IRA, you make contributions with pretax money and pay income tax on withdrawals. With a Roth 401(k) or Roth IRA, you make contributions with after-tax money…you never pay tax on withdrawals…and you never pay a penalty on withdrawals of your contributions.

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