If you’ve just started a new job, chances are your old retirement plan isn't top-of-mind for you right now. But putting off dealing with it for too long can be a big mistake. Here are your options, and a few pitfalls to be aware of.
Leave It Where It Is
If your balance is greater than $5,000 you are able to leave your account in your former employer's plan. This can be a good option if the plan has low administrative fees and inexpensive investment choices. Beware the trap of thinking that the administrative fees are the only costs: mutual funds have fees that are not visible on your account statement. Call the provider and ask what the fee range for mutual funds is and if there are any additional charges.
Move to Your New 401(k)
If your new employer offers a 401(k) this again could potentially be a good option based on fees and investments. But once you move money into your new employer's plan, you cannot move it out until you leave that job. This limits your choices to what your employer offers and that is subject to change at any time.
Move to a Rollover IRA (or Rollover Roth IRA)
With this option, you can move your money to an IRA wherever you like. Popular choices are mutual fund companies, brokerage houses or banks. A less expensive alternative is a do-it-yourself account at an online provider. When you've chosen to open your own IRA, you can change investments or providers at any time through a trustee-to-trustee transfer. This option gives you the most flexibility, but can be tricky without professional help. Your best bet is to enlist the help of a professional financial planner. He or she can guide you through the many choices, and help you find inexpensive investments.
Beware These Pitfalls!
- Moving assets in any way other than a rollover. There are ways to move the money to yourself and then to another retirement account within a given window, but this is VERY tricky and can have disastrous consequences if done improperly.
- You have an outstanding loan against your 401(k). This will need to be repaid as soon as you leave your job. If you are not able to repay this, it will be considered a withdrawal and you will owe taxes, and potentially penalties.
- You are over 55 years old, but not yet 59 1/2. You are allowed to withdraw funds from a 401(k) in this situation, but not from an IRA. If you plan to retire (voluntarily or involuntarily) before you turn 59 1/2, you should consider leaving some, if not all of your assets in your former employer plan.
- You have unvested contributions. Your company may have put restrictions on availability of employer contributions, based on years of service. Your account balance will include both employee and employer contributions, but this may not all be available to you. Any unvested contributions were forfeited when you left your job.
Workers are changing jobs with much more frequency than in the past. One last bit of advice: it is very easy to lose track of old 401(k) accounts. Companies move, you move, companies go out of business. While that money is always yours, tracking it down after many years can be extremely difficult. Consolidate all your retirement plans, or make sure you stay on top of where they are.
Congratulations on your new job! Don't forget to sign up for your new 401(k)!
Securities offered through LPL Financial. Member FINRA/SIPC. Investment advice offered through GPS Wealth Strategies Group LLC, a registered investment advisor. GPS Wealth Strategies Group LLC and Aspen Wealth Management are separate entities from LPL Financial.