Should You Consolidate Your 401k and IRA Accounts?

Should You Consolidate Your 401k and IRA Accounts?

You have probably changed jobs multiple times throughout your career. In fact, the Bureau of Labor Statistics reported that the average worker in America changes jobs every 4.6 years. Gen Xers have almost twice as many job changes as Baby Boomers and Millennials are job-hoppers, pure and simple. In this Insight for 2019, we review whether or not to consolidate 401k and IRA accounts.

The questions you want to ask yourself are:

• How many jobs have I had?

• How many 401k’s do I have from each of those jobs?

• How many IRA's and IRA Rollovers do I have?  

Once you dig a little deeper into all your retirement accounts, you might be surprised to find yourself with multiple statements, different custodians, and diverse investment objectives, paying multiple fees, all working at cross purposes.

So where do you go from here to figure out what your retirement benefits actually look like? If you are starting a new job, or getting ready to retire, you will need to make a decision about whether to keep your former 401k providers or whether to roll to an IRA Rollover. Or you may just want to consolidate your multiple accounts into your current employer’s 401k. Once you leave your employment, most employers will allow you to transfer your 401k to an IRA Rollover.

Comparative alternatives for your 401k’s with former employers.          

Regardless of how many retirement plans you have with your former employers, you do have a variety of alternatives that can enhance your retirement benefits and lower your administrative costs. 

Some options would be:

Leave the money where it is in your former employer’s plan.

• Review the fees and performance of your plan.

• Review the plan’s results to see if they are on track to meet your goals. Most 401k plans allow former employees to remain in their 401k, but you should confirm that with the administrator.

Transfer or roll the monies from your former employer’s plan (401k) to your new employer’s plan.

• Make sure you evaluate the new plan for investment choices, as well as the plan’s expenses. I recommend you wait 12 months after you join your new company to see if you still like the plan before transferring monies into it. It may look good on the surface, but you may not be happy with it after a short period of time.

• Once you transfer monies into the new 401k, your new employer may have restrictions on withdrawing those monies. In many companies you will not be allowed to withdraw the transferred funds until you leave the company’s employment.

Roll or transfer the monies from your old 401k plan into an IRA Rollover.

• If you choose to do this, you will need to manage it yourself or hire an investment advisor to manage it on your behalf. 

• Whether you manage it yourself or hire an investment advisor, you will have more investment options than if you keep it with your current 401K administrator.

• If you hire an Investment Advisor to manage it for you, I would strongly suggest a Registered Investment Advisor (RIA) who adheres to a fiduciary standard and who places your interest in front of their own.

• Keep in mind, if the payment is made directly from your 401k to your IRA Rollover, no taxes will be withheld from your transfer amount.

The IRS has very specific rules regarding rolling over IRAs and 401k's, which is why it is important to work with an experienced, trusted financial advisor.

Whichever alternative you choose, it is important to understand the cost of each plan, as they may vary greatly. Many times 401k’s do not clearly disclose their expenses.  

Liquidate your old 401k. Cashing out can be a simple solution, but could be costly.

• Your administrator will withhold 20% for taxes.

• If you are under age 59 1/2, this cash-out will most likely be considered an early distribution, resulting in a 10% early withdrawal penalty, plus federal and state taxes.

The total tax liability plus penalties could very well be over 50% on the value of the account.

When is a good time to begin the process outlined here on how to consolidate your 401k and IRA accounts?

• Undoubtedly, the answer is NOW.  You’ll have peace of mind knowing you finally have your various retirement assets in one place, under your control.

Call us if we can help with questions or advice. 415-287-5100, or email contact@nollmac.com. You can also use our Contact form on our website.