He Retires With $500,000 in His 401(k) and Wants an Advisor to Take Over. An IRA Rollover Could Add $4,750 Every Year in Fees He Never Saw Coming

A hypothetical 57-year-old leaves his employer with $500,000 in his 401(k) and wants a professional to take over. An advisor-managed IRA promises personalized attention, but the yearly cost can run many times higher than what he pays inside the plan.

It’s a common trade-off for retirees. A 401(k) may offer lower fees but fewer investment choices, while an advisor-managed IRA promises more flexibility. The question is what that convenience actually costs in dollars.

A $4,750 Annual Gap That Never Shows Up on a Bill

In an hypothetical comparison, an advisor-managed IRA with a 1% all-in cost (advisory fee plus fund expenses) charges $5,000 a year on his balance.

A large-employer 401(k) built on institutional index funds can run 0.05% all-in, or $250. That creates an initial annual gap of $4,750. The dollar difference will change as his balance grows or falls.

The fee comes out of the account itself, so no invoice ever arrives. It reduces the pre-tax balance that will later pay for his withdrawals, required minimum distributions and any Roth conversions.

How the Fee Gap Grows to $262,000 by Age 77

To isolate the cost of fees, assume both accounts earn the same hypothetical 6% gross return and no withdrawals are made. After fees, the 401(k) compounds at 5.95% and the IRA at 5%. In reality, he would generally have to start taking required minimum distributions at 75.

The gap keeps growing because every dollar paid in fees also misses all the growth it would have earned over the next two decades. A 1% fee looks small next to the balance. It looks very different next to the growth it takes away.

What the Extra $4,750 Has to Buy

A good advisor can earn that fee through tax planning. Medicare generally uses income from two years earlier to determine whether retirees owe higher premiums. In 2026, a single filer with income above $109,000 pays an extra $81.20 a month for Part B and $14.50 for Part D. Our 57-year-old won’t reach Medicare until 2034, however, and the income thresholds and premiums for that year haven’t been set.

At 2026 rates, that first tier adds about $1,148 a year, and the higher tiers climb quickly (we laid out the full set of Medicare surcharges and coverage gaps that trap retired people, available at no cost here: Medicare’s Hidden Bills). An advisor who plans Roth conversions during his lower-income retirement years and helps limit taxes on his Social Security benefits could save him money. Whether those savings justify $4,750 in additional annual fees is another question.

Investment management adds value too, although some of its basic functions cost far less. A target-date fund in his plan, for example, already handles routine rebalancing for a tiny fraction of 1% a year.

Why Staying in the 401(k) Pays at 57

The biggest advantage is early access. Under the IRS’s Rule of 55, withdrawals from a 401(k) can avoid the 10% early-withdrawal penalty if the employee leaves that employer during or after the calendar year he turns 55. Moving it into an IRA means he misses that exemption until 59½, which takes away the cheapest source of income for his early retirement years.

The plan also gives him institutional fund pricing, federal ERISA protection from creditors and fiduciary oversight of the fund menu. He can keep both the plan and an advisor by leaving the money where it is and paying a flat-fee or hourly planner for the tax work.

Three Moves Before Signing Any Rollover Paperwork

1. Get a written fee comparison. Ask the advisor for a side-by-side comparison in dollars: advisory fee, fund expense ratios and any wrap or platform charges. Set it next to your plan’s annual participant fee disclosure, along with a list of the specific services the extra cost pays for.
2. Project your income at 63. Medicare generally uses that year’s income to set premiums at 65. Since the thresholds will change by then, ask an advisor to model your future income and whether a fixed-fee planner can do the work for well under $4,750.
3. Choose a direct rollover. Have the money sent to your IRA provider or a check made payable to the IRA custodian. If the check is made out to you, the plan must withhold 20%, and you have 60 days to complete the rollover. You’ll need other cash to replace the withheld amount or that portion becomes taxable. Depending on your plan’s rules, you may be able to leave some money in the 401(k) for penalty-free access.

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