Should You Roll Your 401k Into an IRA? Key Factors to Consider

Changing jobs puts you at a crossroads with your retirement savings. Leave your 401k where it is? Move it to your new employer’s plan? Or take a completely different path and roll your 401k into an individual retirement account (IRA)? The answer depends on what matters most to you as an investor.

The decision to roll a 401k into an IRA isn’t simply about “yes” or “no”—it’s about understanding the trade-offs. Some investors crave flexibility and lower costs. Others worry about losing legal protections. Before making your move, consider both sides of the equation.

Why IRAs Attract Investors Seeking Control and Lower Costs

Broader investment choices

Employer 401k plans typically offer a solid selection of stock funds, but bond options are often limited. This makes sense when you’re in accumulation mode, racing to build wealth before retirement. But as you near retirement, you might want more bond exposure—yet your 401k doesn’t give you that option.

An IRA removes this constraint. You can build a diversified mix of stocks, bonds, ETFs, and other securities tailored to your risk tolerance and timeline. This flexibility becomes increasingly valuable as your retirement strategy evolves.

You become the investment manager

With a 401k, the investment menu is pre-selected by your employer. You pick from what’s available, period. An IRA flips the script: you decide where to open the account, which custodian manages it, and which securities to buy.

This autonomy extends to another critical area—fees. An employer 401k charges administrative, management, and service fees that you have no control over. Since you’re essentially a captive investor, the fees eat into your returns whether you like it or not.

With an IRA, you shop around. You can compare fee structures across custodians and brokers, choose the lowest-cost options, and monitor fees over time to ensure they don’t erode your gains unnecessarily.

The Hidden Risks: What You Could Lose in an IRA Transfer

Creditor protection weakens

This is the catch many investors overlook. A 401k is protected under the Employee Retirement Income Security Act (ERISA), which shields your savings from creditors in most situations. An IRA offers less robust protection.

If you face bankruptcy, an IRA may be partially protected depending on your state’s laws. But outside bankruptcy, your IRA could be vulnerable to other creditor claims—and state-by-state protections vary dramatically. In some jurisdictions, your IRA has minimal creditor safeguards. If you work in a high-liability profession (doctor, attorney, business owner), this matters.

The Net Unrealized Appreciation (NUA) strategy disappears

Here’s a scenario many high-income earners don’t realize they’re giving up: suppose your company stock has skyrocketed in your 401k. When you distribute that employer stock as a lump sum, you can use NUA to minimize taxes.

Instead of paying ordinary income tax on the entire appreciated value, you only pay ordinary income tax on what you originally paid for the stock (cost basis). The gains—the real money your stock made—get taxed at the far more favorable long-term capital gains rate when you sell.

This is a massive tax advantage. But here’s the problem: NUA only works with employer-sponsored 401ks. Once you roll that employer stock into an IRA, NUA is off the table. Every dollar of gain gets taxed as ordinary income, not capital gains. For employees holding significant company stock, this could cost thousands in unnecessary taxes.

Making the Right Call: When to Roll Your 401k

Roll it if:

• You want investment flexibility and lower fees
• You don’t hold concentrated positions in employer stock
• You’re not in a high-creditor-risk profession
• You want to consolidate multiple old 401ks into one easy-to-manage IRA

Keep it or avoid rolling if:

• Your 401k holds significant appreciated employer stock (preserve NUA eligibility)
• You live in a state with weak creditor protections for IRAs
• You work in a high-liability field (medicine, law, business)
• Your employer’s 401k offers exceptionally low fees or unique investment options

The biggest mistake investors make is treating this decision as binary. It’s not. You can keep your old 401k, roll a portion into an IRA, and move new contributions to your employer’s plan—whatever combination serves your goals.

The best choice is the one aligned with your priorities. If cost-consciousness and investment control drive your decisions, an IRA wins. If creditor protection or NUA tax savings matter more, your 401k might be worth keeping. Think of it as choosing the retirement structure that lets you sleep well at night while maximizing what you keep after taxes.