Still Haven’t Rolled Over My Old 401(k)? Here’s Why You Should (and How to Do It)

We’ve all been there. You leave a job, get caught up in the excitement of a new beginning, and then… that old 401(k) sits dormant, gathering dust (and hopefully, still some returns) in the back of your mind. You know you should do something about it, but inertia sets in.

If you’re staring at that old 401(k) account and thinking, “I’ll get to it eventually,” this article is for you. Let’s break down why rolling over your old 401(k) is a smart move and how you can finally get it done.

Why Should You Roll Over Your Old 401(k)?

Leaving your 401(k) sitting at your old employer might seem like a convenient option, but it often comes with several drawbacks:

• Limited Investment Options: Your old 401(k) plan likely offers a limited selection of investment options, potentially hindering your ability to diversify and optimize your portfolio for long-term growth. A rollover allows you to access a wider range of investments, including individual stocks, bonds, ETFs, and mutual funds.

• Higher Fees: Old 401(k) plans can sometimes have higher administrative fees compared to individual retirement accounts (IRAs) or your new employer’s plan. These fees can eat into your returns over time, especially if your account balance is relatively small.

• Lack of Personalized Advice: When your 401(k) is tied to your former employer, you often lose access to personalized financial advice and guidance. Rolling over to an IRA or your new 401(k) allows you to work with a financial advisor who understands your specific needs and goals.

• Potential for Forgotten Accounts: Let’s face it, things get lost over time. Forgetting about an old 401(k), especially if you change addresses, could lead to problems down the road. Consolidating your accounts simplifies your financial life and reduces the risk of losing track of your retirement savings.

• Loss of Control and Flexibility: Rolling over gives you more control over your investment strategy and the ability to make withdrawals if necessary (though withdrawals before retirement may incur penalties). You can tailor your portfolio to your risk tolerance and time horizon.

Your Rollover Options: IRA vs. New 401(k)

You have two primary options when rolling over your old 401(k):

• Traditional IRA Rollover: This is the most common option. You move your funds into a Traditional IRA. This allows the money to continue growing tax-deferred, meaning you won’t pay taxes on the growth until you withdraw the funds in retirement.

  • Pros: Wider investment options, potential for lower fees, personalized financial advice.
  • Cons: May complicate backdoor Roth IRA conversions later on, withdrawals are taxed as ordinary income.

• Rollover to Your New Employer’s 401(k): If your new employer offers a 401(k) plan, you can often roll your old 401(k) directly into it.

  • Pros: Simplicity of managing all your retirement savings in one place, may offer lower fees than an IRA, potential for loan provisions (depending on the plan).
  • Cons: Limited investment options compared to an IRA, may not offer personalized financial advice.

How to Roll Over Your 401(k): A Step-by-Step Guide

1. Research Your Options: Decide whether a Traditional IRA or your new 401(k) is the best fit for your needs. Consider factors like investment options, fees, and your overall financial goals.

2. Open an Account (If Necessary): If you’re rolling over to an IRA, open a Traditional IRA account with a reputable brokerage firm or financial institution.

3. Contact Your Old 401(k) Plan Administrator: Let them know you want to initiate a rollover. They’ll provide you with the necessary paperwork and instructions.

4. Choose a Rollover Method:

   • Direct Rollover: The funds are transferred directly from your old 401(k) to your new IRA or 401(k). This is the preferred method as it avoids potential tax complications.
   • Indirect Rollover: You receive a check from your old 401(k) plan. You then have 60 days to deposit the full amount into your new IRA or 401(k). Be aware that 20% of the money will likely be withheld for taxes, which you’ll need to make up when you deposit the funds to avoid penalties.

5. Complete the Paperwork: Fill out all the required forms accurately and completely.

6. Initiate the Transfer: Once the paperwork is processed, your old 401(k) plan administrator will transfer the funds to your new account.

7. Confirm the Transfer: Double-check that the funds have been deposited into your new account correctly.

8. Invest Your Funds: Once the money is in your new account, it’s time to invest! Choose investments that align with your risk tolerance and financial goals.

Common Mistakes to Avoid:

• Missing the 60-Day Deadline (Indirect Rollover): Failing to deposit the funds within 60 days of receiving them can result in a hefty tax bill and penalties.
• Forgetting to Reinvest the Withheld Taxes (Indirect Rollover): You need to make up the 20% withheld for taxes to avoid being taxed on the entire distribution.
• Rolling Over into a Roth IRA Without Considering the Tax Implications: Rolling over a Traditional 401(k) into a Roth IRA triggers a taxable event. Consider the tax implications carefully before making this decision.
• Not Seeking Professional Advice: If you’re unsure about the best course of action, consult with a qualified financial advisor.

Stop Procrastinating and Take Control of Your Retirement Savings!

Rolling over your old 401(k) is a crucial step in securing your financial future. By taking the time to understand your options and follow the steps outlined above, you can ensure your retirement savings continue to grow and work for you. So, stop putting it off and make that rollover happen today! Your future self will thank you for it.

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