Rollovers from workplace retirement plans to individual retirement accounts have become increasingly common, with $682 billion rolled into IRAs in 2023 according to Internal Revenue Service data—more than triple the amount from the early 2000s. Nearly 6 million people executed rollovers in 2023, reflecting broader demographic trends as baby boomers transition into retirement. The IRS issued guidance on Aug. 12 aimed at simplifying and expediting the rollover process, which can be complex and error-prone.
Financial advisors caution that rollovers present several significant risks that warrant careful consideration. The Certified Financial Planner Board of Standards released a guide on Aug. 19 addressing common misconceptions, including the belief that workers must roll over assets when changing jobs or that decisions can be reversed later. In reality, most 401(k) plans permit employees to maintain their assets in a prior employer’s plan, though data indicates few choose this option. More critically, rollovers from a 401(k) to an IRA may be permanent and generally cannot be reversed, with limited exceptions such as the Thrift Savings Plan available to federal employees.
One substantial consideration involves investment fees, which tend to be higher in IRAs compared to employer-sponsored plans. Employers leverage collective purchasing power to access lower-cost institutional share classes of mutual funds, whereas IRA investors typically access higher-cost retail shares of identical funds. A 2022 Pew Charitable Trusts analysis found that median retail fund fees were 0.34 percentage points higher than institutional fees—a 37% difference. The Securities and Exchange Commission estimates that over 20 years, paying 0.25% annually versus 1% annually on a $100,000 investment could result in approximately $30,000 in reduced returns.
Flexibility represents another key factor in rollover decisions. IRAs typically offer substantially more investment options than 401(k) plans, which are curated by employers. Approximately 69% of 401(k) plans offered 25 or fewer funds in 2025, according to the Plan Sponsor Council of America. Additionally, employers maintain a legal fiduciary duty to select plan investments in workers’ best interests, a requirement that may not apply to financial intermediaries recommending specific IRA rollovers. Prospective rollovers should carefully weigh fees, flexibility, and fiduciary protections before proceeding.
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