By Ian Berger, JD
IRA Analyst
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In her June 28, 2023 Slott Report post, Sarah Brenner discussed several reasons why it pays to roll over your retirement plan savings to an IRA. Another option is to keep your funds in the plan. Keep in mind, though, this may not always be possible. Sometimes your plan may force you to take your dollars out, for example when you reach the plan’s retirement age (normally, age 65) or if you have a small account balance. And, of course, if you keep your dollars in the plan when you leave employment, you’ll have to start taking required distributions when you reach your RMD (required minimum distribution) age.

With that in mind, here’s several reasons why you may want to keep your plan funds where they are:

Creditor Protection

One of the most important reasons is protecting them from creditors. Assuming you’re in an ERISA plan, your funds are rock-solid safe if you are in bankruptcy or if you are sued. (ERISA plans include most 401(k) plans, some 403(b) plans, but no 457(b) plans. Ask the plan administrator if you’re not sure of your plan’s status.)  However, IRAs are not covered by ERISA, so once you do a rollover the rules are different. Although your rolled-over dollars are still protected if you declare bankruptcy, they may not be safe against other creditors. That depends on the law of the state where you live. The protection of IRAs under state laws varies from state to state.


Most plans allow you to borrow against your account, but you can’t take a loan against your IRA. Although not common these days, some plans also allow you to purchase life insurance with your plan funds. You can’t buy insurance with your IRA.

Still-Working Exception

If you’re still working at age 73, you can usually delay RMDs until you retire. (This doesn’t apply if you owe more than 5% of the company sponsoring the plan.) You have no similar ability to defer RMDs from your IRAs.

Age 55 or Age 50/25-Year Exception

There’s an exception to the 10% early distribution penalty if you receive a distribution from your plan after separating from service in the year you turn age 55 or older. (For public safety employees, the exception is age 50 or older – or the completion of 25 years of service, if earlier.) This age exception doesn’t apply to IRA withdrawals. So, if you separate from service when you’re 55 or older (or satisfy the age 50/25 years of service rule if a public safety worker) and will need to tap into your savings before 59 ½, you’d be wise to keep your funds in the plan. That way, you can avoid the penalty. By contrast, if you do an IRA rollover and then need to reach those monies before 59 ½, you’d be penalized.