Summary: Matt Hudak AAMS®, CFP®, CEPA®, Financial Advisor and Chief Investment Officer of CoCreate Financial, explains why the answer to whether you should roll over a 401(k) to an IRA (or a Roth 401(k) to a Roth IRA) is almost always yes, despite widespread internet misinformation driven by financial industry liability concerns and unresolved Department of Labor rollover regulation efforts stemming from Dodd-Frank. He compares 401(k)s as employer plans—limited investment menus, payroll-only contributions, vesting considerations, and stronger creditor protection—to IRAs, which offer far more flexibility, broader investment choices, consolidation of old accounts, and the ability to receive coordinated ongoing advice from a dedicated advisor. He notes potential downsides of IRAs if self-managed poorly, highlights myths about 401(k) fee advantages, and encourages viewers to evaluate rollovers in their specific context and seek professional guidance.

2026.05.08

Full Transcipt

Matt Hudak: Hi friends. We're going to talk about a really important question that a lot of people come to us with, and there's a lot of misinformation about it on the internet. The question is, should I roll over my 401(k) plan to an IRA? Or should I roll over my Roth 401(k) to a Roth IRA? What are the pros and cons? How do we unpack this? So we're going to dive in and talk about that in this video today.

My name is Matt Hudak. I'm the CEO of CoCreate Financial and really excited about this topic. When we look at this, a lot of the conversation, a lot of the information that you find online, has really centered around liability protection for the financial industry.

Back in 2012, when they enacted Dodd-Frank, they put in a directive for the Department of Labor to try to regulate rollovers, like they regulate the 401(k) plans even after they're outside of the employer plan. And this process of developing these regulations then has been caught up in court and in all kinds of different iterations of it that have been overturned, that have been thrown out, that have been really just not very functional. And so the industry as a whole has said, "we're going to say we're not going to give any advice on this. We're going to tell you it's better to leave it in the 401(k)," because that's the political risk that's on the firms to mitigate.

And they say, "I don't want to deal with violating a rule that doesn't exist yet." So they're more focused on that than really giving advice that's in the best interest of the person with a rollover, you.

So when we look at it, we want to look at a few different things. And we do need to evaluate this carefully in your context, but the short answer is almost always yes. You should roll over your 401(k) into an IRA. And there are a few reasons for that, but let's look at some of the differences and similarities before we dive into why you should.

One of the main differences with the 401(k) and the IRA is the 401(k) is an employer plan, and your IRA is your own plan, and that means a few things.

The IRA is very flexible. There's a lot that you can do in it. There's a lot you can do right. And in a lot of ways you can improve. There are a lot of ways that you can also go wrong and misstep in an IRA, especially if you're managing it on your own and, and you're not somebody that's built up the knowledge and experience with investing.

You can make a lot of unwise choices that maybe the 401(k) would prevent you from doing, but the 401(k) also, as an employer plan, has more limitations within it, and it has fewer different products that you can have. It also vests, which means that some of the money that your employers contributed as a matching contribution may or may not be yours yet while you're still working for the company.

Now, if you leave and roll over to an IRA while you're not fully vested yet, you might lose that vested amount. And then if you go back to work for that employer again, you might have to start over in that vesting schedule. And how that works is probably a great content for another video 'cause we don't have the time to dive into that here.

But when you're looking at that mix, you want to make sure that you're not planning to go back to the employer in the relatively near future because that could cause some problems to roll it over. If you're watching this video, you probably already know that you have to leave your employer in order to do that.

Or sometimes you might have that provision if you're getting ready to retire and you're in your sixties. You can sometimes roll over that balance to kind of get you started in the IRA and make your process of retiring more efficient. They call that an in-service distribution. And some plans offer that, some don't.

But within the 401(k) structure you have higher contribution limits, but you can only contribute through payroll. And the IRA, you don't have quite as high a contribution amount that you can make each year. But if you're not making the contribution to the 401(k) because you're not employed with that employer, you can't make that contribution anyway. So, the 401(k) has a higher limit of liability from creditors. So that you can't have a creditor when you owe money to someone, they can't come and collect that out of your 401(k).

In the IRA, you still have a million dollars of creditor protection. So it's still a substantial amount if we're looking at that IRA balance. But if there's a debt issue, we need to look at that and make sure that we're cognizant of what that looks like in our strategy for doing the rollover. Okay. So the biggest reasons to do this rollover really have to do with investments and advice. So when you're doing your research, you'll see  online things about investment fees being different and maybe being less or negotiated down in the 401(k).

This is really just a myth. It depends on plan to plan. But often what we do see in 401(k)'s is that they have very low expense funds that are often low expense for a reason, they're subpar, their performance isn't great. And the quality of management is not very high. And the way that they get sales as a fund is to get them into 401(k) plans so that people have these limited choice menus and they'll buy these funds because it fits a category.

And a lot of times, employers or plan fiduciaries say well, I can meet my obligations by choosing something that's low cost, and they limit their search to things that tend to be low cost, and having a couple of things that are in a different investment mix, a different type of sector or, you know, something might be global, something might be small and aggressive or whatever.

And they pair a few things, but they tend to look at costs and other features of these funds. And we end up with these subpar mixes. They're just not portfolios that a professional investor would put together. They just aren't, and there's not enough choice within the 401(k) plans oftentimes to meet, even if they are good, to meet an investor's needs to meet one of our client's needs. So we're looking at saying, well, what do we do here? We want to be mostly in U.S. companies that pay dividends and there's not even an option in the 401(k) for that. Maybe we'll go with something that's the S&P500 index fund when we're investing in the 401(k) instead.

But then the S&P 500 index fund is not actually a diversified investment. It's 40% large cap tech stocks, which right now happen to be in a significant bubble as we're recording this. So that's actually a high risk momentum investment. And the 401(k) plans don't have the ability to account for those types of risks.

Whereas in the IRA, we can do a wide spectrum of things. Now, you don't want to go from a limited menu of investments that probably aren't going to get you into a lot of trouble. In your 401(k) plan to an IRA that you're managing and maybe doing highly speculative things like investing in Bitcoin.

Or there are some ways that you can own real estate in IRAs that have some pretty massive logistical drawbacks that create a pretty intense risk for you if you're not very very methodical in how you've evaluated that. So there are things that you can do again to misstep in these IRAs if you are not careful, if you're managing them yourselves, especially because if you're working with a professional, they should know the things that are going to cause problems and be aware of those and how to avoid those things. But within that spectrum, within an IRA, you can also own dividend yielding stocks. You can own tech stocks, you can own bonds, you can own individual bonds, you can have funds, you can have ETFs, you can have really any kind of investment that's out there in some form.

And there are a few things that are outside of that scope, but they're not mainstream types of investments that you can't own inside an IRA. So you have a lot of choice and a lot of ability to manage this in a way that works and you can hire professionals to get ongoing advice and to really have a financial plan that's coordinated to meet your needs.

Whereas in the 401(k), some of them do now have like a one 800 number where you can call a certified financial planner professional to get some advice on what you're thinking. But that person that you're calling doesn't really know your situation, like a financial advisor that you're hiring that's in your community, that's engaged with you, that knows your kids' names and knows how long you've been married, that understands the community, the type of neighborhood that you're in, where you're going, what your business looks like, that knows your tax situation, your estate plan.

So you don't really get the same kind of advice in a 401(k) that you can get outside of that 401(k) when you're working with a professional advisor that's dedicated to you and has an ongoing engagement. And then the other thing is with IRAs, you can roll over your 401(k) from the job that you just left into an IRA.

You can roll over the 401(k) from the job you left 10 years ago into the IRA and you can keep your investments consolidated. And sometimes you can even save in other types of buckets, like other types of accounts. We talk about these things like buckets here at our firm 'cause we like to be simple and speak in plain English, but you can put it into an account that you can save in parallel to the IRA too.

You can save where you can access it before retirement. So there are lots of different things you can do, but you can keep everything in one place. If you do these rollovers, and you're not going to walk into your retirement era in life or your next chapter and say, “I don't know where all my money is. I know I had this 401(k) from this old job, but I don't know how to find it.” That's a common thing. Or you'll be coming in and saying, I found this 401(k) from 30 years ago that I didn't know was just sitting in cash and could have quadrupled over the 30 years or whatever it would be in value. Again, that's not guaranteed, right.

Performance has risks and all of those things, having an investment grow, but you didn't realize that it was sitting there in cash or maybe even an unclaimed property somewhere. These are common things that we encounter with people is that they've lost assets from the past and it actually has a significant negative outcome for the client. When we see those things happen, in most cases, sometimes you find a hundred thousand dollars and you say, that's pretty sweet that I just realized I had this money that had been growing since I was 22. And that was like that, that's awesome. But that's the uncommon side of it.

More often it's things weren't managed appropriately because you forgot about them. And so keeping things consolidated, keeping things in a place where you can get professional advice really has a dramatic advantage. And most of the information that you see on, you know, the pros and cons of doing a rollover are really oriented around satisfying this regulatory burden and the liability that's been put on the financial industry to try to tell you you should keep money in the 401(k)s because they don't really want to say roll it over and then find out that they had some requirement that they didn't check on a form or something like that down the road. So there's really been really poor advice on this over the last 15 years or so. So I really want to encourage you to think about that. The fees are generally very similar.

Anything can be compared. It's apples and oranges. You might spend a little bit more on one side or the other in a specific context. But compare all these things, get advice, reach out to us. We're always happy to talk to you about the actual implications of your decision and what that means and help you make that decision from a really grounded, rooted, wise perspective. I'm excited to talk with you about this. Give us a call. We're always available to help you make these decisions. And excited. Take care.