Have you enrolled in 401(k)’s at former companies? Did you roll them over or keep them where they were at? If you don’t know the answer to these questions, you’re going to want to pay attention. I’m going to walk through why I like to rollover 401(k)’s.
Why 401(k)?
As you progress in your career working for different companies, you’ll likely have contributed to multiple 401(k)’s along the way. Let’s review why individuals utilize 401(k)’s in the first place:
- Many companies will match all or a portion of your contributions – FREE MONEY!
- They allow for pre-tax contributions with high annual limits – $19,500 in 2020
If you haven’t contributed to a 401(k) before, read here to learn how.
Why Roll Over?
Reasons why you shouldn’t let your money sit in an old 401(k):
- 401(k) programs, generally, have higher fees that eat away at your long-term return. Investing in low-fee fund options is a better alternative. This could differ depending on your specific investments, but I find that discount firms like Vanguard compete, or beat most options.
- Your employer may cover some of the administrative costs when employed. When departing, the costs may get passed onto you.
- Rolling over your funds into an IRA will give you more investment options.
- Getting as many of your investment funds in one place makes it easier for you in the long-term; less thinking, more relaxing.
Exceptions
There are exceptions to rolling over your 401(k) to your new employer or keeping it in the existing plan, but they are few and far between. This article walks through some of those.
Taking Action
If you’re reading those initial two questions and you’re thinking, “I’m not even sure if I have or not,” don’t freak out; this is straightforward to iron out. I’m here to help you, not hound you. The financial world isn’t bending over backward to help anyone out but themselves, weird.
- If you don’t know it, call your former employer’s HR department to determine who the 401(k) provider was during your course of employment.
- Contact the provider to determine if you have funds still in an account.
- If yes, request to roll over the funds to your current investment provider.
- Do this for each of your former employers.
- Congrats! You now have all (or most) of your retirement funds all in one place.
This may seem like simple advice, but I’ve worked with clients who didn’t know if or how much money they had or where it was sitting. You could have thousands of dollars unaccounted for. See why those lattes aren’t always your kryptonite?! Simplicity is key.
Pro Tip: Utilizing a website like Personal Capital makes it easy to track and assess these funds over time, acting as a reliable health check on your retirement.
Conclusion
My north star when it comes to managing finances is simplicity. There are always going to be nuances to these decisions along the way. I believe keeping things simple outweighs most other outcomes. Once you have all your investment funds in one place, you’ll be able to make more intelligent decisions moving forward.
Don’t freak out. Take control. Move forward.
