The Biggest Mistake People Make With 401(k) Rollovers

When you leave a job, what you do with your old 401(k) is one of the most consequential money decisions you’ll make — and the biggest mistake is treating it as a simple transfer instead of a planning opportunity. In this video, Michael Alman explains the three questions to ask before you roll anything over.

Video transcript

Hi, my name is Michael Alman and I’m a financial adviser with Patriot Asset Advisors. I want to talk today about the biggest mistake that people make with their 401(k) rollover, and what to do instead. When you leave your employer, you’re given a few choices for an old 401(k): you can leave it where it is, move it to a new plan, or roll it over into an IRA. Most people focus on simply moving the money safely — making sure it all gets from the old account into the new one and keeps reinvesting. But here’s where the opportunity is: the real value comes from making sure the move fits your overall plan.

So what’s the biggest mistake I see? Treating the rollover like a simple transaction, not a strategic move. People think, “I’ll just move it to an IRA,” but they don’t stop to think about how the investments will change, how the fees compare between plans, or whether it’s the right time to convert some of those funds into a Roth while tax rates are historically low. And yes, some people take the rollover directly as a check and cash it, leading to a taxes and withholding nightmare — but even more common is the missed planning opportunity in the rollover itself.

So what’s the right approach? Before you roll over, always ask yourself three key questions:

1. Where will this money grow best? Your old 401(k) might have higher costs or fees, or limited fund choices. An IRA can offer more flexibility, but it’s up to you to manage it well once you have those funds.
2. How does this fit into my overall tax strategy? The rollover might be the perfect opportunity to convert some of those funds into a Roth — pay tax now and get it tax-free later in life.
3. Am I setting myself up for consistent income later? The rollover is an opportunity to make sure your retirement income matches your planning now, so you know exactly where your income in retirement is coming from.

So before you roll over that 401(k), stop and ask these questions. Don’t just ask, “How can I keep this money safe?” Instead, ask how the rollover fits into your overall financial planning strategy. If you’re changing jobs or heading into retirement and you have 401(k) questions, please feel free to reach out to us — our team helps design rollover strategies that minimize taxes and maximize your income.