Most Employees Plan on Rolling 401(k) Dollars to an IRA

November 6, 2003 ( - When it comes time to transition between jobs 32% of retirement savers say their 401(k) assets are going into an Individual Retirement Account (IRA).

This was the most popular option followed by three out of 10 that plan on rolling their retirement fund into their new employees 401(k) plan, while 21% said they would keep their defined contribution dollars where they are. Otherwise, a miniscule 4% have plans to withdraw the money and the remaining 13% either have no plans or do not know, according to a survey conducted by American Century Investments.

“We were heartened by the large number of retirement savers who recognize the value of rolling over their savings into an outside account,” said Doug Lockwood, vice president of shareholder education at American Century.

Lockwood though sees inroads that still need to be made. “Misconceptions about the rollover process and IRA accounts still seem prevalent.” Particularly, of those who state that they would leave their savings in an employer’s plan, 44% feel that the rollover process is either confusing, too much of a hassle, or too time-consuming, while 45% cite the belief that their employer’s plan is a better option.

Additionally, the “hassle factor” seems to be a major deterrent to rollovers. Roughly one-third (34%) of those who would leave their savings in an employer’s plan would be likely – four or five on a five-point scale – to consider rolling their account to an outside plan if they knew it would only take one phone call to do so. A similar number (30%) said they would be likely to consider rolling over their retirement money if the financial institution would guarantee their satisfaction with the process or give them $50.

American Century’s poll though seems to draw contradictions between what people preach – plans to rollover retirement assets – and what they practice – a high penchant for cashing out when they switch jobs. Research by Hewitt Associates found 42% of the 160,000 participants records examined are taking 401(k) lump sum distributions when they switch jobs, compared with only 6% who moved the money into their new employer’s plan. Overall though, moving money into an IRA was the most popular option, elected by 52% of Hewitt’s sample (See Hewitt: Many Employees Elect 401(k) Cash When Changing Jobs ).

The results of American Century’s Rollover Survey were drawn from telephone interviews with 793 adults employed adults living in private households in the continental United States who have money in either an employer-sponsored retirement plan like a 401(k) or any type of IRA.