Rebecca Smith
What To Do With An Old 401k – “What do I do with my old 401k?” One of the most common questions we get is financial planning. Although your situation is unique, in this video and blog we’ll cover three main options to consider:
There are three main options that you often consider when answering the question, “What to do with old 401k”? I think you’re wondering why you haven’t heard more about both options. In fact, this would be the choice I usually recommend for many customers.
What To Do With An Old 401k
As you should know, your first choice may surprise you. You don’t have to do anything special. However, I will show why this is necessary.
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Generally, if your account value is under $5,000, the cost of record keeping and maintaining your account is too much for you to maintain the plan, so the plan obliges you. At that point you must choose one of the other options. However, it is important to know that if you have more than $5,000 in your account, you can leave your account where it is.
The 401(k) plan is discretionary with your employer, which means they decide which company to use and the list of investments you can choose from. Suffice it to say, you are at their mercy.
They can change which institutions have accounts and which investment options you choose at any time. None of these things need to be checked with you. It’s common for people to let their stories drag on for years when they’re not there.
Whether you’ve done it before or are looking into marketing a large investment company, a rollover is a common option for your old 401(k) plan. A rollover involves transferring money from an old 401k to an Individual Retirement Account (IRA).
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As the name suggests, a retirement account is yours, which means you’re in control. You can choose which institution to open an account with. You can also choose from the many investment options available, which are almost endless these days. We could argue that this is a pro or con because we are often our own worst enemy when it comes to investing. For many, the simple list of 401(k) may be best. But, the wide range of investment options is often cited as one of the main reasons why people choose to invest.
Using your money in an IRA also allows you to work with a financial planner or investment manager. The availability of this advice is another common reason that many people choose this path and should not be overlooked. This happens because most advisors charge their fees based on the assets they manage. A 1% management fee is normal in our business. This means that the advisor manages the rollover IRA and charges a fee against the account to compensate.
A downside to this example is that option three is often overlooked, and option three is usually my favorite.
The list includes transferring your money from your old 401(k) plan to your new 401(k) plan. Unfortunately, not all plans can be fulfilled, your first step is to check with your HR department and find out if this is possible.
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If so, this would be a great option to consider, especially for those of you with high incomes. In terms of logistics, as you move from the old plan to the new plan, very little changes from your original location. The rules are the same. The employer decides where to plan and invest.
Now backdoor Roth contributions are beyond the scope of this video and article, but you can read more about the backdoor Roth IRA process here.
How you figure out which show is best for you depends on your unique financial situation. If you have an old age pension and are not sure if it is best for you, please contact us. To schedule an initial interview.
If you learned something from this article, be sure to subscribe to our email list to get more personal finance tips delivered straight to your inbox. We are in the midst of what is known as the Great Depression. Millions and millions of people have left their jobs and careers to look for other career opportunities or to wait for something better. What better time to talk about the reasons to roll an old 401K into an IRA than when millions of people are leaving their workplaces and their 401Ks behind.
What To Do With An Old 401(k)
According to a white paper produced by HighCapitalize, about 24.3 million 401(k) accounts and $1.35 million in assets are left behind by people who change jobs.
I can’t tell you how many times I’ve talked to a client who makes one of these comments when discussing an old 401K… “Forget about it” or “Oh it’s small, it doesn’t matter” or “Oh yeah, I’ve thought about that car for years.”
Life is busy and if we don’t act and prioritize now, prioritizing will continue to be a challenge as you add responsibilities and change your life. Let’s talk about your options and why your 401K is rolling.
When you leave a company and roll over a 401K, you have a few options for what to do:
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Your contributions to your 401K, or employer-provided retirement plan, are yours. Your employer’s contribution depends on the terms of the workplace and you may have to work there for a certain period of time in order to “surrender” or transfer ownership of their contribution.
But the amount you contribute to the 401K and what you want is up to you. So what are your options?
In my opinion, perhaps the best and easiest option for you is to roll your old 401K plan into a rollover IRA. This is the reason.
Top 4 Reasons to Turn Your 401K into an IRA
What To Do With Your 401(k) If You Change Jobs
Typically, 401K plans have an element of administrative fees and expenses associated with your investment choices. These fees can range anywhere from 0.50% – 2% depending on what you invest and the size of the employer’s plan. This is a high fee to eat into your investment, when in most cases, the account is not properly managed by a professional.
When you roll over an IRA, you have the option to do one of the following:
When you invest in your employer-provided pension, your investment options are limited to pre-approved amounts. Your investment options are limited and there is no opportunity to invest in everything you want
When you open an IRA, you have access to individual stocks, bonds, ETFs, mutual funds, and more.
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401Ks give you less control than choosing investments from a list of pre-approved funds and how much you plan to contribute. Especially if you leave your workplace, please note that you may not be able to renew with all plan changes.
401K plans often limit the amount you can change in your portfolio throughout the year. Most of the time you cannot buy and sell your investments at will.
When I leave my workplace, I want the freedom to decide where I keep my account, how I invest, what I change, and when and what fees I pay. You can gain this type of control by opening an IRA.
I’m a big proponent of creating a personal financial life that’s easy for you to manage. Easy for you to review, access and monitor. Preserving assets of old employees, having accounts in this company and that company will certainly create an environment that is very difficult to control.
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I’m a big advocate of taking the plunge and rolling your old 401K into a rollover IRA because I’ll say it again, life is busy and if you don’t make it a priority now, it’s going to be hard to think about making time for it later.
But luckily for you, now, sometimes, it takes a lot of time and frustration to roll an old 401K into an IRA that’s simplified for individuals, and I can’t share that.
Of course you have the option to take matters into your own hands, open an account, call (yes call, most don’t allow you to do this electronically).
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