5-Minute Fix: Time To Consolidate Old 401(k) Accounts

In a recent post, we mentioned how frequent job hopping can do a number on your retirement savings.  One of the consequences of job-hopping is that many workers leave behind a trail of small, easily-neglected 401(k) accounts.

Here’s a 5-minute fix that let’s you get these forgotten accounts back working hard for you:

According to data from the Bureau of Labor Statistics, there are probably over 12 million workers who have left money behind in the 401(k) accounts of their former employer.

That’s a problem, say experts.  “Most people have little time or attention for one retirement account, never mind multiple ones,” explains Albert Bozzo of CNBC“Neglected accounts are more likely to perform badly because they are poorly constructed, without consideration to such tenets as diversification and asset allocation.”

It gets even more confusing when it’s time to start the required draw-down of your account balances once you turn age 70 ½.  (See “Five Things You Need To Know About Your IRA’s “Required Minimum Distribution”). When all your retirement accounts are in one place, the withdrawal calculations are easier and less prone to error.

Plus, it’s easy to consolidate without losing any money to taxes.  All you need to do is a “Trustee-to-Trustee” rollover, which goes directly from your 401(k) to your IRA custodian. (Ask your financial advisor or IRA custodian for help since goof-ups can be costly).

By consolidating, you gain more control over your investment selections, withdrawal schedule, and beneficiary designations. You may also lower overall costs if coming from a small business 401(k) or one using an insurance company to provide annuities.

Financial Tip:  There are a few scenarios where you are better off staying in your 401(k) rather than rolling assets to an IRA, the main one being if you retire at age 55 or later and need to withdraw savings between age 55 and 59½.  To explore these special options, don’t forget to discuss your situation with your financial advisor.

About Mari Adam

Mari Adam, Certified Financial Planner™ and President of Adam Financial Associates Inc, has been helping individuals and families chart their financial futures for over twenty-five years. Have a question about your financial situation? Ask Mari!
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