What to do with an old 401(k)
If you’ve changed jobs at least once in your career, there is a good chance you’re one of the many who have left their old 401(k) behind. Whether your old company used Fidelity, Vanguard, Schwab, or any other provider, that money is yours and we’re going to help you get it back.
We work with a lot of high earners who have a few old 401(k)s or other retirement accounts lying around. They want to know what they can do with the money. Can they withdraw it? Should they roll it over to a plan with their new employer? Or something else? Assuming they can dig up all their old passwords, we tell clients to consolidate any old 401(k)s into a traditional IRA.
The benefits of rolling your 401(k) into an IRA
The money you’ve set aside for retirement at your old companies is still your money. And if your old employer was offering a match, their contributions are still your money as well – even if you’re no longer there. Rolling your old 401(k) into an IRA has some major benefits.
Avoid taxes and penalties
Contributions to a 401(k) are tax-deductible, so you’ll want to roll the money over to an account that has the same tax treatment. Simply withdrawing the money or rolling it into an account with a different tax treatment will trigger regular income taxes and a 10% penalty.
IRAs are usually cheaper
Just because you can’t always see the fees involved with a 401(k) doesn’t mean they’re not there. They exist and they can be pretty high. Long term, these fees can make a serious dent in your return.
Meanwhile, setting up an IRA is free. The investments within the IRA, like an ETF or mutual fund, may charge small fees, but they probably won’t be anywhere near as high as those involved in a 401(k).
IRAs have more investment options than a 401(k)
A 401(k) has a pre-selected group of funds from which you can choose. IRAs, on the other hand, allow you to explore a wide variety of investment options like stocks, mutual funds, bonds, and ETFs. This feature gives you more flexibility in implementing investment strategies that fit your own unique financial goals and timeline.
How do I roll an old 401(k) into an IRA?
Set up a corresponding IRA, either online or with a financial advisor. If you have a traditional 401(k) at your old company, open a traditional IRA. If you have a Roth 401(k) from your old company, open a Roth IRA.
Go online to find the number for your old benefits department or plan administrator. Tell them you're rolling your 401(k).
They’ll cut a check for your 401(k) balance and mail it. Yes, through the United States Postal Service with a stamp and everything. Your administrator can even send the check directly to the firm where you opened your new IRA.
If the check is sent to you, deposit the check within 60 days of withdrawal to avoid a 10% penalty.
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Written by Stash Wealth Staff Writer
Stash Wealth Staff Writers are knowledgeable about personal finance topics. Their objective is to unravel the complexities of finance trade jargon, products, and services in order to equip HENRYs with a sound understanding of financial matters.