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401(k) Rollovers: What should I do?

Updated: Jun 16, 2023

So… that job is history. But that 401(k) from your old employer is not. There are billions of dollars sitting unclaimed in workplace retirement plans. Some of it might be yours if you have ever left a job and forgotten to take your vested retirement savings with you. Despite that, no matter how long your old 401(k) has been left untouched, that money is still yours. Here are 3 steps to consider:

Step 1: Determine whether to rollover

You might be able to leave your old 401(k) money where it is if it’s in your former employer’s plan. More than half of workers — 55% — are choosing to leave their assets in their former employer’s 401(k) plan a year into retirement, according to Fidelity data on its workplace retirement accounts. There may be a minimum balance required to leave your money with your old company, but most companies will let you do it. One reason to do so is that you may have access to certain mutual funds that charge lower management fees available to institutional clients. However, there are a few downsides to keeping your 401(k) at your old company. One, you are not allowed to contribute to the plan anymore, and two, you’ll have multiple 401(k) plans floating around. Therefore, although it may be an option to leave your money in your old 401(k), it typically is not the best option.

Step 2: Determine where to rollover

If you have money in an old 401(k) that you want to move, you have a couple options. First, you can roll over your 401(k) to your new employer’s plan. If your new employer accepts rollovers, you like the investment choices, and the fees aren’t too high, then this is a good way for all your money to be in one account making it easy to manage. The second option is to roll over your 401(k) to an IRA. This will allow you to have access to a broader range of investments and typically have lower fees.

Step 3: Determine how to rollover

In order to move your money, you can either do a direct rollover or an indirect rollover. In an indirect rollover, the funds are given to the employee via check for deposit to a personal account. Often a direct rollover is the preferred method because there is less opportunity for something to go wrong. In a direct rollover, the 401k funds move straight to your new account and the money never passes through you.

There aren’t really any “wrong” answers. No matter what you do with your old 401(k), the fact that you’re thinking about what the best option is for you shows that you are taking control of your finances. Although it depends on each individual and their circumstances, if you have an old 401(k), you may want to consider rolling it over today!

“Taking control of your money means knowing what you have, where you have it, and why.”

A few reminders:

  • Never withdraw your 401(k) balance instead of moving it. Cashing out before 59 ½ incurs a 10 percent early withdrawal penalty, unless you left your job after 55. Then, you can take your money out of your 401(k) without incurring the 10 percent penalty.

  • There may be a one-time fee for doing a rollover, but most of the time they are pretty minimal.

  • There’s no limit on how much 401(k) money you can transfer to an IRA, even if it is more than the contribution limit for an IRA.

If you have any questions, we are happy to help. Please contact us here or visit our website for more information.


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