I have been telling employees this for years. It’s simple – You cannot borrow against the money in your IRA, but you can in the 401(k). For most employees under age 55 or so, that is normally their best option. And nowadays, (especially my) clients are very conscious of fees, while many firms charge larger amounts for IRA’s. – Reeve
CNBC.com Thursday, 4 Apr 2013 | 9:08 AM ET
misleading information when they leave their jobs and roll over their
retirement money into individual retirement accounts, or IRAs, from
company-sponsored 401(k) plans, according to a report released on
Wednesday by the Government Accountability Office.
The government watchdog did not name any of the firms where it found
misleading practices. Almost all U.S. workers shift money from 401(k)
accounts, administered by employers, into IRAs, which must be
individually overseen, when they leave a job even though other options
are permitted and may be more beneficial, the GAO said.
“The financial services industry spends substantial time and effort into
marketing IRAs that may not be in the best interests of account
holders,” Representative George Miller, Senator Tom Harkin and Senator
Bill Nelson said in a statement. The three Democrats requested that the
GAO research the rollover issue.
“This comes as no surprise since IRAs often come with higher costs when compared to a 401(k),” the three said.
Harkin is chairman of the Senate Committee on Health, Education, Labor
and Pensions; Nelson is chairman of the Senate Special Committee on
Aging; and Miller is chairman of the House Committee on Education and
IRAs have become the key retirement savings
vehicle for individuals, small business owners, independent contractors
and any other worker not covered by a company-sponsored retirement plan.
401(k) plans, on the other hand, are funded by workers, who typically
receive matching funds from employers.
The GAO report said 401(k) plan service providers encourage customers to roll over money
into IRAs, but may offer little information about other options.
“During our investigator’s calls, about a third of call center
representatives of 401(k) plan service providers encouraged the caller
to roll over 401(k) plan savings from the ex-employer’s plan to the
service provider’s IRA products, and 12 did not mention the option to
leave money in the current plan,” the GAO said.
IRA assets totaled $5.1 trillion by mid-year 2012, accounting for 28 percent of
U.S. retirement assets, according to the Investment Company Institute in
Multiple websites reviewed by the GAO also
showed that fee disclosure was located in small print in footnotes,
sometimes contradicting the main body of information.
“For example, one website stated in the main body of information on fees that
it had no fee for selling funds, but a footnote stated that the $49.95
fee would be charged on redemption of funds held for 90 days or less if
they were purchased through a proprietary service,” the GAO said.
In one rollover application, the schedule of fees was located in the last section of a 49-page supplement, the report said.
Rollovers have become the largest source of contributions to IRAs, the GAO said, citing ICI data.