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.
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 (NYSE: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have a Roth IRA with the advisor, the rollover could restart the five-year waiting period before earnings can be withdrawn tax-free.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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This article Should They Roll Over A $1M 401(k) To Their Financial Advisor? Suze Orman Warns Against Losing Early Withdrawal Access originally appeared on Benzinga.com
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