Rolling over a $1 million 401(k) to a financial advisor might seem like a smart move — but according to personal finance expert Suze Orman, there are some serious trade-offs to consider first.
In a recent episode of the “Women & Money” podcast, Orman shared her thoughts on a listener’s situation and pointed out why early retirees should think twice before making the switch.
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The Listener’s Dilemma
The question came from Jeff, whose husband retired early at age 57. The couple has over $1 million saved in a 401(k), split between traditional and Roth accounts. Their financial advisor, who works with Morgan Stanley MS, has suggested rolling both accounts into IRAs under his management.
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While Jeff said the advisor has been helpful with other investments, he’s concerned about fees and whether moving the entire 401(k) is truly in their best interest.
Orman’s Warning: You Could Lose Penalty-Free Access
Orman’s main concern? Early access. She explained that because Jeff’s husband retired at 57, he qualifies under IRS Rule 72(t), which allows penalty-free withdrawals from a 401(k) if someone leaves their job in the year they turn 55 or later. That flexibility would disappear with a rollover.
“If you roll it over to your financial adviser,” Orman said, “you cannot touch that money until you are 59½ years of age.”
So while taxes would still apply to withdrawals from the traditional portion, the penalty-free access could be a crucial safety net — especially in uncertain times.
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What About the Roth 401(k)?
Orman also raised a flag about the Roth portion. If Jeff doesn’t already have a Roth IRA with the advisor, the rollover could restart the five-year waiting period before earnings can be withdrawn tax-free.
That means even Roth funds could be locked up longer than expected, depending on how the rollover is done.
Consider a Split Strategy
“You don’t have to be an all-or-nothing investor,” Orman pointed out. Instead of rolling over everything, Jeff could consider leaving part of the 401(k) — especially the traditional part — where it is. That way, early access remains available if needed.
Before moving funds, Orman suggests asking a key question: “Will the advisor earn you enough to cover the higher management fees compared to what you’re already earning in the 401(k)?”
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Don’t Forget the Backdoor Roth Implication
One last consideration: If Jeff rolls funds into a traditional IRA, it may limit future strategies. Specifically, it could block the ability to do a backdoor Roth IRA conversion, which can be a valuable tax strategy for high earners.
“You won’t be able to do a backdoor Roth if you have an IRA,” Orman cautioned. “You will be able to do it if you have a traditional 401(k).”
Bottom Line
Rolling over a 401(k) isn’t just about investment performance — it’s also about access, taxes, and flexibility. Before making the move, it’s worth weighing all your options and understanding what might be lost in the process.
As Orman reminds listeners often: When it comes to your money, “You need to know everything you need to know.”
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