Why You Should Roll Over Your Old 401(k)

Yes, all of the money in my 401(k) vanished without warning one day! Well, that’s a bit of an embellishment… It only seemed to have disappeared based on a letter I got in the mail. After some investigation, I learned that it had just been moved to a different plan provider. But no one had given me a heads up because I don’t work at that firm anymore. They somehow forgot I was still a participant in their plan.…

Here’s what happened and why you should consider rolling your old 401(k) into an IRA or a new 401(k) when you change jobs.

What Happened to My Old 401(k)

When I left my job on Wall Street, I didn’t have any solid employment plans. I also wasn’t nearly as savvy with my personal finances as I am now, so I decided to leave my money in my old 401(k) until I figured things out. Fast forward a few years, and my money was still there because I hadn’t taken the time to move it into an IRA or Solo 401(k). At the time, there was really no rush to move it; the funds offered in the 401(k) plan were low fee, so it wasn’t costing me anything to leave it there… Or so I thought.

ReisUP Why Do A 401k Rollover Pinterest Graphic

One day, I got a letter in the mail stating that all of my investments had been zeroed out. Seriously! Out of nowhere, it appeared as though my entire 401(k) balance had gone POOF into thin air! After a moment of panic, I emailed the person in charge of the 401(k) at my old job and was like “Hey! Is there something going on with our 401(k) plan that I should know about? I just got a letter saying my account was emptied.”

He got back to me quickly and said “Yes, we’re changing plan providers, so your account balance has been transferred to a different company. Sorry, I forgot you were still in our plan.” Umm…. Forgot?! Isn’t there a list of participants or something? Yikes.

Why You Should Consider A 401(k) Rollover

Needless to say, that was the kick I needed to finally move my 401(k) balance to a new account that I have control over. On top of not being forgotten about, here are some other reasons you should consider rolling your 401(k) over after you change jobs:

#1 - Your new employer offers a match

Make sure you’re taking advantage of these programs and snagging any free money that’s available to you! You aren’t eligible for your old company’s match plan once you’ve left that job. But you may be eligible for a match offered by your new employer.

#2 - Your old 401(k) isn’t cheap

If the fees charged to participants in your old 401(k) are high, or if the funds offered have higher than acceptable expense ratios, you should consider moving your balance to an IRA or to the 401(k) at your new job. This may allow you to keep a greater portion of your investment returns, which could have an exponentially positive effect on your nest egg size in the future.

#3 - You want more investment freedom

401(k) plans usually only offer access to a specific, limited list of investment options. By rolling your 401(k) over into an IRA, you could gain access to a much larger universe of investment choices, which may help you achieve your big financial goals.

The Right Way to Roll Over Your 401(k)

The super important thing to remember if you decide to roll your 401(k) over into a new 401(k) or IRA is to do what’s called a “direct transfer”. A direct transfer involves transferring your account balance directly from one trustee (your old account) to the other trustee (your new account).

Make sure your old 401(k) transfers the money directly to your new account. Do not let them cut you a check or put the check in your name. If you don’t follow the proper steps to transfer it over yourself (usually within a very short window), you could be penalized big time for “withdrawing those funds early”. Make sure you do a direct transfer, that way you don’t have to worry about penalties or taxes.

Should You Roll Over Your 401(k)?

Make sure you keep tabs on and take control of any old retirement accounts you have floating around. If you have one or more of them, it’s probably advantageous for you to execute a rollover.

TELL ME…

Now I’m curious… Has anything like this ever happened to you? Leave a comment below to share your 401(k) horror story.

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Tara Falcone, CFA, CFP® | Instagram: @reisupllc | YouTube: reisupllc.