What Should You Do With an Old 401(k)?
Most People Get This Wrong.
Changing jobs often means leaving something behind: your 401(k).
Maybe you know exactly where it is. Maybe you've accumulated several retirement accounts over your career. Or perhaps you've lost track of one completely.
The important question isn't simply “Where is my old 401(k)?” It's “Is it still the best place for my retirement savings?”
How Do I Find an Old 401(k)?
If you've lost track of a retirement account, start with the U.S. Department of Labor's Retirement Savings Lost and Found Database:
Find an old 401(k) through the Department of Labor
This federal database helps workers locate retirement plans associated with former employers.
What Can I Do With an Old 401(k)?
When you leave an employer, you generally have four choices:
Leave it in your former employer's 401(k) if the plan allows it.
Roll it into your new employer's 401(k) if the new plan accepts rollovers.
Roll it into an IRA.
Take a distribution, which may create taxes and potentially an additional early-withdrawal tax.
There isn't one right choice for everyone.
What Are the Benefits of Rolling Over a 401(k)?
One of the biggest potential benefits is simplifying your financial life.
If you have retirement savings spread across several old employers, it can become difficult to see the complete picture. Consolidating appropriate accounts may make it easier to:
Understand your overall investment allocation and risk
Track your retirement savings
Coordinate investments across accounts
Review fees
Keep beneficiaries current
Plan future retirement income and withdrawals
Rolling an old 401(k) into an IRA may also provide access to a wider range of investment choices than an employer plan.
But more choices don't automatically mean a better outcome.
Some 401(k)s offer excellent low-cost investments or other benefits worth keeping. That's why we believe the decision should start with evaluating the plan you already have.
Should I Roll My 401(k) Into an IRA?
Not necessarily.
A rollover can make sense when it improves your investment options, simplifies your accounts, or better integrates your retirement savings into your overall financial plan.
Keeping your existing 401(k) may be preferable when the plan offers attractive investments, low costs, or features and protections you don't want to lose.
Before moving anything, compare the fees, investment choices, services, withdrawal rules, and other features of both accounts.
How Do I Roll Over a 401(k) Without Paying Taxes?
When a rollover is appropriate, a direct rollover is often the cleanest approach.
With a direct rollover, eligible retirement assets generally move directly from your former employer's plan into another eligible retirement plan or IRA without being paid to you first.
If the distribution is paid directly to you, different tax withholding and rollover rules can apply.
An Old 401(k) Shouldn't Be an Afterthought
Your retirement accounts should work together.
At Independent Wealth Solutions, we help individuals and families throughout Encinitas and North County San Diego evaluate old 401(k)s, retirement investments, income needs, taxes, and other pieces of their financial lives as part of one coordinated plan.
Have an old 401(k) you're not sure what to do with? Contact us and let's review your options and determine what makes sense for your retirement plan.
