Choose a home for your retirement plan savings

When you retire, you'll need to decide what to do with the savings in your employer-sponsored retirement plan. Remember that every pre-tax dollar you withdraw to spend in retirement counts as earned income, meaning you'll owe taxes.

To avoid paying taxes on all your savings at once, you generally have two options: roll over to an IRA or leave your money in the plan.

IRAs: Flexibility and responsibility

An IRA provides you with greater control than most employer plans. For instance, many plans restrict how often you can withdraw money each year. You can withdraw from an IRA anytime. So you would always have access to your money if an unexpected financial emergency (or opportunity) came up.

Many financial institutions offer a wide range of investment options to IRA customers, which can help you tailor your investment mix to your preferences. You wouldn't be limited to the investment options offered by your employer plan.

While an IRA rollover does put you in control of your money, it can come with added responsibility. If your employer plan offers investment advice or management services, you won't have access to those services in an IRA. Some IRA providers offer similar services, but these may have fees attached.

An IRA may also have additional costs and fees. In an employer plan, the employer often pays many of the fees involved in maintaining your account. You should carefully examine any costs and fees when choosing an IRA provider.

Rolling over to a Vanguard IRA® can give you some of the advantages of an IRA and your employer plan. A Vanguard IRA provides access to the full range of Vanguard's mutual funds. So if your employer plan uses Vanguard funds, you'll be able to stay in the same investments. You can also set up automatic withdrawals from a Vanguard IRA and have them deposited directly to your bank account.

You'll also enjoy low costs. A Vanguard IRA charges no account maintenance fee if you sign up for electronic delivery of your statements and other account documents.* In addition, Vanguard mutual funds cost one-fifth as much to own as funds from other providers, on average.**

Video case study: Marsha consolidates her retirement accounts

Employer plans: Familiarity and rules

Most retirement plans allow you to keep your money in the plan past retirement if you have a balance of at least $5,000. Some set a lower minimum, or none at all.

Obviously, the biggest potential advantage of leaving your money in the plan is that you aren't required to do anything. Your retirement plan account continues as it always has, although you cannot deposit additional money. You'll have all the same investment options and tools to manage your account.

Many plans allow you to set up systematic withdrawals. You choose a withdrawal amount and frequency, and the plan will automatically process your withdrawals.

You'll need to follow your retirement plan's rules if you leave your money in the plan. For instance, some plans allow only a certain number of withdrawals per year during retirement. Carefully consider your plan rules if you will be drawing your retirement income from your employer plan.

How to choose

The choice of whether to stay in your employer plan or roll over comes down to which option fits your needs. If most of your retirement savings is in one plan and you plan to take regular withdrawals, it might make sense to leave your money in the plan. If you have savings in multiple accounts, it may be easier to consolidate your savings in an IRA, where you would have more flexibility managing your money.

You should also take a look at your retirement plan's investment options. While many plans offer investments you can't get anywhere else, other plans offer only a few investment options. Most IRAs offer a large range of choices for investing your money. Remember that all investing is subject to risk, including the possible loss of the money you invest.

Comparison
 IRAEmployer plan
Investment optionsWide range of publicly available options.Options limited by plan rules. Possible exclusive options.
Withdrawal flexibilityNo limit on withdrawals.Withdrawals subject to plan rules.
Additional contributionsAllowed.Not allowed.
Costs and feesPaid by you.May be paid by employer.

Action steps

  • Carefully compare the features of your employer plan and an IRA.

To roll over

  • Choose an IRA provider. Make sure to research costs and investment options.
  • Decide on an investment mix for your IRA.
  • Contact Vanguard to start your rollover. You can log on and request a transaction online.

To stay in your plan

  • Review your plan's rules, especially regarding withdrawals.
  • Contact Vanguard to request any paperwork required to take income withdrawals from your plan.
  • Review your investment mix to make sure it is appropriate for retirement.

*If you do not sign up for e-delivery and are not a Voyager®, Voyager Select®, or Flagship® client, a $20 annual fee applies to each fund with a balance of less than $10,000 in your IRA.

**Vanguard average expense ratio: 0.19%. Industry average expense ratio: 1.11%. Sources: Vanguard and Lipper Inc. as of December 31, 2012.