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I just helped a new client consolidate old 401k accounts. They were tired of the hassle of multiple statements, old logins and differing investment options, but they just hadn’t found the time to address the situation. Have you switched jobs recently?
You probably packed up your belongings and said your goodbyes, but did you leave behind your 401K? Many of us change companies and let months or even years go by before we do anything with our old employer retirement accounts. If you can raise your hand on this one, let me help you with a few easy steps to get this cleaned up and have your retirement accounts actively working for you again.
1. Where Is My Account Located?
So many times, we hear I don’t even know where my account is held. Locating your account may be as easy as going through the paperwork you were provided by your employer on you way out or you may have to reach out to your previous employer’s human resources department to obtain plan information. Not even sure who to call? find the company’s general phone number online and ask for “human resources.” Once you have located your account, see if you can log-in online to get an idea of the type of account and titling.
2. What Should I Do With My Old 401(K)?
There are always a few options for dealing with your old 401(k). You may keep your 401(k) at the current custodian, roll it over to your new employer’s 401(k), or request that it be distributed to a rollover IRA. Before transferring your account, you will need to confirm what portion of your 401(k) is made up of traditional and Roth contributions. This is important because traditional, pre-tax 401(k) contributions should be transferred to a traditional IRA to avoid additional taxes and Roth 401(k) contributions are transferred to a Roth IRA.
3. How Do I Get Started?
Once you have decided which option works best for you, contact the current custodian to confirm what information they will require in order to complete your desired transfer.
Stay with the current custodian If you decide to keep your 401(k) at the current custodian, no further steps are necessary. It is important to note however, that no additional contributions will be allowed to this account. Additionally, you will want to log in to your account quarterly or at least twice a year to monitor account transactions and review your investment choices and allocations
Rollover to your new employer’s 401(k) If your new employer has an attractive plan with low fees and a variety of investment choices, then moving over your old 401(k) is often a great choice. Before you make the move, you will need to confirm with your new plan provider that this option is available. Not all plans accept transfers from other 401(k) plans. If this type of transfer is allowed, your new plan provider will be able to walk you through the transfer process.
Rollover to an IRA If you can’t consolidate your accounts at your new employer or if you prefer to direct your investments going forward, then distributing your old 401(k) to an IRA is a great choice. Setting up an IRA can be relatively easy, and it can even be done online. As previously mentioned, if your 401(k) is made up both pre-tax and post-tax contributions you will need to open a traditional IRA and a Roth IRA.
If you already have a traditional or a Roth IRA you won’t need to set up new accounts. Once all appropriate accounts have been established, contact the current custodian to initiate the account transfer. If the current 401K custodian allows for an “in-kind transfer” to the IRA(s), they will ask for your account information and transfer the assets for you. If the custodian requires you to liquidate your account to cash, a check will be cut and sent to you. The check will need to be deposited to your IRA within 60 days of the withdrawal to avoid a 10% penalty. Oh, and make a copy or snap a picture of the check for your records just to be sure.
Don’t forget your old 401(k)’s! Leaving them behind just because you don’t know how to move them could mean you are missing out on opportunities that may benefit you in the long run. Before transferring your account, your financial advisor can also help you evaluate the best option for you. If you are working on your own, always be sure to review your options, consider your goals and evaluate the investment choices and administrative fees in various plans. While you are thinking about that employer plan, check out our learning paper- Understanding Individual Retirement Accounts.
Related: Top Tax Tips to Consider Before Year End