facebook twitter instagram linkedin google youtube vimeo tumblr yelp rss email podcast phone blog search brokercheck brokercheck Play Pause
Why You Should Not Roll Over Your Company Funds to an IRA Thumbnail

Why You Should Not Roll Over Your Company Funds to an IRA

In her June 28, 2023, Slott Report post, Sarah Brenner discussed several reasons why it pays to roll over your retirement plan savings to an IRA. Another option is to keep your funds in the plan. Keep in mind, though, this may not always be possible. Sometimes your plan may force you to take your dollars out, for example when you reach the plan’s retirement age (normally, age 65) or if you have a small account balance. And, of course, if you keep your dollars in the plan when you leave employment, you’ll have to start taking required distributions when you reach your RMD (required minimum distribution) age.

With that in mind, here’s several reasons why you may want to keep your plan funds where they are:

Keeping your funds in your retirement plan protects you from creditors, can allow you to purchase life insurance with funds, and can offer certain tax advantages.Creditor Protection

One of the most important reasons is protecting them from creditors. Assuming you’re in an ERISA plan, your funds are rock-solid safe if you are in bankruptcy or if you are sued. (ERISA plans include most 401(k) plans, some 403(b) plans, but no 457(b) plans. Ask the plan administrator if you’re not sure of your plan’s status.)  However, IRAs are not covered by ERISA, so once you do a rollover the rules are different. Although your rolled-over dollars are still protected if you declare bankruptcy, they may not be safe against other creditors. That depends on the law of the state where you live. The protection of IRAs under state laws varies from state to state.


Most plans allow you to borrow against your account, but you can’t take a loan against your IRA. Although not common these days, some plans also allow you to purchase life insurance with your plan funds. You can’t buy insurance with your IRA.

Still-Working Exception

If you’re still working at age 73, you can usually delay RMDs until you retire. (This doesn’t apply if you owe more than 5% of the company sponsoring the plan.) You have no similar ability to defer RMDs from your IRAs.

Age 55 or Age 50/25-Year Exception

There’s an exception to the 10% early distribution penalty if you receive a distribution from your plan after separating from service in the year you turn age 55 or older. (For public safety employees, the exception is age 50 or older – or the completion of 25 years of service, if earlier.) This age exception doesn’t apply to IRA withdrawals. So, if you separate from service when you’re 55 or older (or satisfy the age 50/25 years of service rule if a public safety worker) and will need to tap into your savings before 59 ½, you’d be wise to keep your funds in the plan. That way, you can avoid the penalty. By contrast, if you do an IRA rollover and then need to reach those monies before 59 ½, you’d be penalized.

By Ian Berger, JD
IRA Analyst
Ed Slott and Company, LLC

To read more of our blog articles, click here.

Christian Cordoba, founder of California Retirement Advisors, has been a member of Ed Slott's Master Elite IRA Advisor Group since 2007.

Copyright © 2023, Ed Slott and Company, LLC Reprinted from The Slott Report, 07/05/23, with permission. https://www.irahelp.com/slottreport/why-you-should-not-roll-over-your-company-funds-ira, Ed Slott and Company, LLC takes no responsibility for the current accuracy of this article. 
Investment advisory services offered through Mutual Advisors, LLC DBA California Retirement Advisors, a SEC registered investment adviser. Securities offered through Mutual Securities, Inc., member FINRA/SIPC. Mutual Securities, Inc. and Mutual Advisors, LLC are affiliated companies. CA Insurance license #0B09076. This content is developed from sources believed to be providing accurate information and provided by California Retirement Advisors. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information and should not be considered a solicitation for the purchase or sale of any security. California Retirement Advisors, nor any of its members, are tax accountants or legal attorneys and do not provide tax or legal advice. For tax or legal advice, you should consult your tax or legal professional.