Rolling Over 401(k) to an IRA? This 'Irreversible' Move Could Cost Retirees $30,000

For millions of Americans, leaving a job can trigger an important retirement decision: what should happen to the money sitting in a 401(k)? Moving those savings into an individual retirement account, or IRA, is increasingly common. But the decision can affect investment fees, choices, withdrawal options, and how the money is managed. In many cases, it also cannot simply be reversed.

Rollovers Are Becoming More Common

Federal law allows workers to make tax-free rollovers from workplace retirement plans into IRAs in certain circumstances, including after changing jobs or retiring. The latest available Internal Revenue Service data shows investors rolled $682 billion into IRAs in 2023. Nearly 6 million people made rollovers that year, compared with about 4 million in the early 2000s.

A January paper by Asher Dvir-Djerassi, a fellow at the University of Michigan's Stone Center for Inequality Dynamics, found that almost half of newly opened traditional IRAs in 2020 were funded solely with money rolled over from workplace retirement plans. The trend is becoming increasingly important as more baby boomers enter retirement.

The Decision May Be Irreversible

The Certified Financial Planner Board of Standards addressed the issue in a rollover guide published on Aug. 19. The organisation said workers do not have to move their 401(k) savings after leaving a job. Most plans allow former employees to leave their money in the existing workplace plan. It also warned investors not to assume they can easily undo a rollover.

Brenton Harrison, a certified financial planner based in Nashville, said investors generally cannot return money to the previous 401(k) after moving it into an IRA. There are exceptions. The federal Thrift Savings Plan permits certain former federal employees to move funds back into the plan under specific conditions.

How Fees Can Create a $30,000 Gap

Fees are one reason a rollover can have a significant long-term effect. The Securities and Exchange Commission uses a hypothetical $100,000 investment to illustrate the impact. If the investment earns 4% annually for 20 years, an investor paying a 0.25% annual fee would have about $208,000. At a 1% annual fee, the balance would be roughly $179,000.

The difference is about $30,000. That does not mean every investor who rolls a 401(k) into an IRA will lose $30,000. Actual results depend on fees, investment performance, account size, and the length of time the money remains invested. The example instead shows how small differences in annual costs can become substantial over time.

Workplace Plans May Offer Lower Costs

Ellen Lander, founder of Renaissance Benefit Advisors Group, said workplace plans can benefit from the combined purchasing power of employees. That can give participants access to institutional investment share classes with lower costs than comparable retail versions.

The Pew Charitable Trusts examined the difference in a 2022 analysis. It found that median retail shares of stock mutual funds had annual fees 0.34 percentage points higher than institutional shares in 2019.

Lander said moving from a workplace plan to an IRA can mean moving from an institutional buyer to a retail buyer. Those additional charges can reduce the amount available for future investment growth.

More Choice Can Mean More Responsibility

An IRA can offer a wider range of investments than a typical 401(k). That can appeal to investors who want greater control, but more choice also means more decisions. The Plan Sponsor Council of America reported that about 69% of 401(k) plans offered 25 funds or fewer in 2025.

Harrison said a curated investment menu can reduce the burden of managing a retirement portfolio. The rollover decision can also influence who manages the investments. Some investors may want professional management through an IRA, while others may prefer to retain control over their workplace plan investments.

Withdrawal Rules Can Differ

The two account types can offer different ways to access retirement savings. According to the Plan Sponsor Council of America, 52% of 401(k) plans allowed monthly or quarterly instalments in 2025. About 68% offered periodic or partial withdrawals, while 13% offered annuities.

Some 401(k) plans also allow participants to take loans. IRAs do not offer the same borrowing option. These differences may matter to retirees who expect to need flexible access to their savings.