401(k) decision framework

Before Rolling Over a 401(k), Ask What You Could Gain—and What You Could Give Up

A rollover can be appropriate in some situations, but an employer plan can also contain features worth preserving. The decision should begin with comparison, not an assumption that an IRA is automatically better.

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Educational contentPrimary sources reviewed October 7, 2026About Strong Tower Important disclosures

Quick answer: After you leave a job, you can usually leave a 401(k) in the plan, move it to a new employer's plan, roll it to an IRA, cash it out, or combine these. An IRA rollover can make sense, but it is not automatically better. Compare the total cost in dollars, withdrawal options, early-access rules, employer stock, Roth or after-tax money and creditor protection. Then, if you move money, use a direct rollover.

Ten questions to answer before you move money

What does the current plan cost, all-in? Fund expense ratios, plan administration fees and any advice fees. Your plan's annual fee disclosure lists them.
What would the alternative cost, all-in? Include fund expenses, any advisory fee, commissions and account fees.
What investments does the plan offer? Some plans have institutional share classes or stable-value funds not available in an IRA.
What services are included in each? Planning help, managed accounts, customer service and online tools.
Could you need money before 59½? The Rule of 55 applies only in the employer plan. See Rule of 55 vs. 72(t).
Does the plan hold employer stock? Net unrealized appreciation (NUA) treatment is lost if the shares go into an IRA.
Is there Roth or after-tax (non-Roth) money? Each needs to be routed correctly.
What withdrawal options does the plan allow? Partial, installment, or lump sum only.
How do creditor protections compare under federal and Illinois law? This is a question for an attorney if it matters to you.
What problem would the rollover solve? For example, consolidation, investment choice, withdrawal flexibility or a different service model.

Comparing costs in dollars

Hypothetical The table shows how the same percentage differences look in dollars on a $400,000 balance. The percentages are invented for illustration. Either the plan or an IRA could be the lower-cost choice for you.

Hypothetical annual cost on a $400,000 balance
All-in annual cost	Dollars per year	Over 10 years (no growth assumed)
0.25%	$1,000	$10,000
0.60%	$2,400	$24,000
1.00%	$4,000	$40,000

Cost is not the only factor. Advice, planning and service can have value. But the cost should be known, written down and weighed against what you receive.

Employer stock and NUA

If your 401(k) holds company stock that has grown in value, the IRS net unrealized appreciation rules may allow a different tax result. As part of a qualifying lump-sum distribution, the shares can be moved to a taxable brokerage account. Only the plan's cost basis is taxed as ordinary income at that time. The appreciation is taxed at long-term capital-gain rates when you sell.

Hypothetical NUA comparison: $200,000 of employer stock with a $50,000 cost basis
Path	Taxed as ordinary income	Taxed at long-term capital-gain rates
Roll shares into an IRA, then withdraw later	$200,000 (as withdrawn)	$0
Distribute shares under NUA rules	$50,000 (in the distribution year)	$150,000 (when sold)

Hypothetical The figures show the structure only. Whether NUA is worth it depends on the size of the basis, your tax brackets now and later, state taxes, concentration risk and whether you qualify for a lump-sum distribution. The decision must be made before the shares are rolled over.

Mechanics: direct versus indirect rollovers

Direct rollover: the plan sends the money straight to the new plan or IRA. There is no withholding.
Indirect rollover: the plan pays you, and it must withhold 20% for federal income tax. To avoid tax on the shortfall, you have 60 days to deposit the full amount, including the withheld 20% from other funds.
RMDs cannot be rolled over. If you are 73 or older (75 if born in 1960 or later), the year's required distribution comes out first.
Roth 401(k) to Roth IRA: be sure Roth money goes to a Roth IRA, and keep records of the plan's Roth contribution basis.

The rules that apply to people who recommend rollovers

A broker-dealer recommending a rollover must act in your best interest under SEC Regulation Best Interest. Investment advisers owe a fiduciary duty, and Department of Labor rules can also apply to rollover advice. FINRA has reminded firms that a rollover recommendation should consider fees, services, investment options and other differences between the plan and the IRA. You can ask:

Did you review my current plan's fees and investment options?
How are you paid if I roll over, and how are you paid if I do not?
What would I give up by leaving the plan?
Can you give me the reasons for your recommendation in writing?

You can research any financial professional on FINRA BrokerCheck and the SEC's Investment Adviser Public Disclosure site.

Frequently asked questions

Do I have to roll over my 401(k) when I retire?

No. Many plans let you leave the money in the plan after you leave, often above a minimum balance. Ask the plan about its rules, and remember that RMDs will still apply at the required age.

Is an IRA always cheaper or better than a 401(k)?

No. Some employer plans have very low costs and institutional investments, while IRAs may offer broader choice and different services. Compare the total cost in dollars and the features you would gain or give up.

What happens if a rollover check is made out to me?

The plan generally withholds 20% for federal income tax. You have 60 days to deposit the full distribution, including the withheld amount from other funds, to avoid tax on the shortfall and, if you are under 59½, a possible 10% additional tax.

Should I roll employer stock into an IRA?

Not before evaluating net unrealized appreciation. Rolling the shares into an IRA gives up the option to have the appreciation taxed at capital-gain rates under the NUA rules.

What to do next

Download the 401(k) Retirement Decision Guide and fill in its side-by-side comparison worksheet.
Request your plan's fee disclosure and Summary Plan Description.
Schedule a conversation to review the comparison before any money moves.

Sources

This page is general education. It is not a recommendation to roll over, transfer or distribute any retirement account.

Next step

Compare first. Move second.

The 401(k) Retirement Decision Guide gives you a structured worksheet to use before making a rollover or distribution decision.

Get the 401(k) Decision Guide

Content review

Prepared by Strong Tower Advisors for general retirement education. Rule-based content is linked to primary public sources where practical and is reviewed periodically because tax, retirement-plan, Social Security, healthcare and Medicare rules can change.

About Strong Tower Advisors · Editorial and sourcing standards · Last reviewed October 2026