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NEW YORK (CNNMoney)
Retirement savers transfer billions of dollars each year into Individual Retirement Accounts, typically when changing jobs. But sometimes you may be better off leaving your nest egg alone.
It's big business too, with many financial firms urging you to make the switch and some even offering "bonuses" worth hundreds of dollars.
"Whenever you get a bonus, that means you are going to pay a lot more down the road," said Mercer Bullard, a University of Mississippi School of Law professor and founder of Fund Democracy, a nonprofit investor advocacy group.
Consumer advocates like Bullard say that rollovers aren't always the best move, in part because IRA investments tend to be more expensive than those in an employer's 401(k) plan.
When changing jobs, you actually have four options for your existing 401(k) savings: Leave the money in your former employer's plan, roll the money into a new employer plan, roll it into an IRA or cash out entirely, which comes with a significant tax penalty.
Here's how to figure out what makes sense for you.
Beware of misleading sales pitches: An undercover investigation by the Government Accountability Office last year found that financial firms were encouraging people to roll over their assets into an IRA by providing misleading information.
Many of the firms surveyed downplayed expenses associated with the accounts, in some cases incorrectly advertising them as free.
Even if there aren't fees associated with the rollover, the account will still come with costs.
Evaluate your investment options: If you're frustrated with the limited investment options offered by your 401(k) plan, an IRA could be for you.
IRAs typically offer a wide variety of investment options, ranging from mutual funds to real-estate investments called REITs. Still, for some investors the laundry list of options could actually be a negative.
"Figuring out what to put your money into is an enormous responsibility," Garrett said. "It can be overwhelming and daunting and cause great confusion."
Pay attention to fees: In large 401(k) plans, employers are typically able to negotiate low fund expense ratios that are often far below 1%.
Check your 401(k) plan's quarterly statement to compare what you're currently paying to what you would pay in an IRA. While discount brokerages like Vanguard offer some low-cost options, some IRA investments may have fees as high as 2% or more.
Studies have shown that even a small difference in fees can result in the difference of tens of thousands of dollars over decades of saving.
Make sure to check the fine print in an IRA account agreement for any administrative fees. Many employer-sponsored 401(k) plans absorb these costs.
Aim for simplicity: If you've ended up with a hodge podge of 401(k) accounts from past jobs, consolidating them into a single IRA could simplify things, said Sheryl Garrett, founder of The Garrett Planning Network, Inc.
On the flip side, rolling your savings into a new employer's plan (if the plan allows it) can be a way to keep all of your retirement money in one place.
Watch out for conflicts of interest: Regulators say consumers should be aware that some financial professionals who recommend an IRA rollover might earn commissions or fees as a result.
While registered investment advisers are held to the fiduciary standard, meaning they have to put your best interests first, brokers are held to a lesser standard.
"An unscrupulous investment professional can see a huge pot of money and they can steer the client into high-cost, low-performing investments," said Micah Hauptman, financial services counsel at the Consumer Federation of America.
For more on how to make sure your adviser is working in your best interest, use this guidefrom the Department of Labor.
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