It might be time for a retirement account rollover. Let’s explore some options for consolidating your accounts.
It’s become a cliché: the image of a disorganized person, confused, dumping a pile of receipts on an accountant’s desk and begging for help. Save me from the nightmare of filing my taxes! And while the caricature is less and less relevant with the rise of electronic document sharing, easily accessible statements and transaction histories, and intuitive accounting software, the spirit remains firmly intact.
For investors, it takes on a different flavor, but one equally frustrating and debilitating for those affected by disorganization, lack of clarity, and a sense of hopelessness. It can be summed up in story after story we can tell of clients who have accounts spread across dozens of institutions, of lost property claims, of the life insurance policy where the company has changed hands so many times the old statement has no usable information, or of the forgotten 401(k) from four jobs ago that hasn’t been reviewed in over a decade.
It’s that last point where we have some deep insight as an advisor to individuals and companies on their 401(k)s and 403(b)s. If you find yourself in this situation and have some money in a retirement account with your former employer and you’re not sure what to do with it, we can help.
Let’s cover your options:
Leave It Where It Is
We generally don’t recommend this. Why? Administratively, it can become frustrating having your assets floating around old retirement plan accounts. Usernames and passwords get forgotten, or worse, your former employer experiences a transition (merger and acquisition, new service providers, etc.). Suddenly your assets are at a new recordkeeper and you don’t know how to access your account. Of course, they are required to notify you, but we all accidentally delete (or throw away) important emails and mailings assuming it’s just another “junk” piece.
Roll It Into an IRA
A potential benefit of moving your assets out of your former employer’s retirement plan is that you can reinvest them in funds that may be better suited to your financial goals than the funds they were in previously. Plus, an individual retirement account (IRA) may have lower fees and more investment options than your existing retirement account.
Roll It Into Your New Employer’s Retirement Plan
The main advantage of rolling your assets into your current employer’s retirement plan is that all of your retirement dollars will be consolidated in a single account. Having all of your assets in one place simplifies things administratively and makes it easier to monitor investment performance, fees, and total asset growth.
Choose wisely and be careful! Depending on your overall financial situation and goals, one of these options might stand out as the winner. For those interested in exploring an indirect Roth IRA strategy, keeping retirement assets inside 401(k) or 403(b) plans is key. If you decide to roll over your assets, make sure to do a direct rollover and not a withdrawal. If you make a withdrawal and you’re younger than 59.5 years old, you will trigger a 10 percent early withdrawal penalty, as well as unnecessarily reducing your overall retirement assets. To be on the safe side, call your recordkeeper directly and have them initiate your direct rollover over the phone.
As with all of your financial decisions, having a plan to frame the question is crucial, and your overall goals and objectives, as well as the specific makeup of your portfolio, should drive your decisions.
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