As millions of workers move retirement savings from employer plans into individual accounts, a few routine choices can wipe out years of compound growth. With sweeping transfers accelerating as Baby Boomers retire, recent federal guidance aims to smooth the process—but experts warn there are real, sometimes irreversible, trade-offs investors should know now.
Rolling a 401(k) or other workplace account into an individual retirement account has become common: investors moved about $682 billion into IRAs in 2023, more than three times the early-2000s pace, according to IRS figures. Nearly 6 million rollovers occurred last year, and research shows rollover activity is a dominant reason new traditional IRAs are opened.
What regulators recently changed — and why it matters
This August the IRS issued guidance intended to streamline rollovers, addressing paperwork and timing that can slow transfers. Days later, the CFP Board published a plain-language guide laying out the pitfalls advisors see most often.
Those updates matter because a rollover can be a point of no return. Financial planners say in most cases you cannot move money back into your old employer’s plan once it lands in an IRA. The federal Thrift Savings Plan for government employees is a notable exception, but it imposes limits and doesn’t accept rollovers from Roth IRAs.
Key risks to weigh
Financial advisors identify several consequences that can shrink long‑term balances or reduce flexibility:
- Higher fees: Employer plans often obtain institutional share classes that cost less. IRAs typically offer retail shares with higher expense ratios, which erode compound returns over decades.
- Irreversibility: In many cases you can’t return funds to a previous employer plan after a rollover, limiting future options.
- Different withdrawal rules: Some workplace plans provide installment or loan options that IRAs do not.
- Fiduciary differences: Employers selecting 401(k) menu items are bound by fiduciary duties; a broker recommending an IRA product might not be.
- Investment choice trade-offs: IRAs widen the menu of investments, but that breadth can complicate decision‑making for some investors.
Those points are more than abstract. A Pew Charitable Trusts analysis found median retail mutual-fund shares cost about 0.34 percentage points more annually than institutional shares in 2019—a roughly 37% premium. The SEC’s hypothetical shows why that matters: a $100,000 investment growing at 4% for 20 years would be about $208,000 with a 0.25% fee, versus roughly $179,000 with a 1% fee.
Fees vs. flexibility: trade-offs aren’t one‑size‑fits‑all
Moving money into an IRA can broaden the range of investments and simplify working with an independent advisor who manages assets directly. But people who remain in their former employer’s plan may keep access to lower-cost funds and features like loans.
Plan design also varies. According to the Plan Sponsor Council of America, about 69% of 401(k) plans offered 25 funds or fewer in 2025, and in roughly 77% of those plans, fewer than half of retirees left their balances where they were. Yet many participants still choose to transfer assets out.
Advisors caution that more choices aren’t always better—curated menus can reduce the burden of self-management and limit costly mistakes.
Practical checklist before you roll
- Compare total costs between your current plan and an IRA, including expense ratios and any platform or advisory fees.
- Confirm whether your former employer’s plan allows in‑plan loans or installment withdrawals you might lose by rolling out.
- Ask whether the person recommending a rollover is a fiduciary required to act in your best interest.
- Check whether you can return the money to the employer plan later; assume you usually cannot.
- Factor in tax consequences when mixing pre‑tax and Roth accounts—rules differ depending on account types.
For many savers the best decision depends on the individual: how long until retirement, how much you pay in fees, whether you need advisory services, and what withdrawal options you want. Given the volume of funds moving to IRAs and the recent regulatory clarifications, taking a deliberate, fact‑based look at these trade-offs will help protect retirement savings from avoidable losses.
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Jordan Keller specializes in analyzing the US financial markets. With concrete recommendations, he helps you secure and boost your investments by providing strategies that adapt to market fluctuations.