In our modern economy, it is normal for people to switch jobs several times along the course of their career. Whether you’re seeking to acquire a new skill, live in a different city, or receive higher pay, changing companies is just part of the new normal. So it’s easy to leave a string of abandoned 401(k) plans in the wake of your career trajectory.
So what to do? You essentially have three options: leave it, roll it into an IRA, or roll it into your new employer’s 401(k) plan. None of these options is bad, but there may be one that fits your objectives best. So here’s a quick rundown of their pros and cons:
This option is probably the most common choice but only because it’s the no-action default. And that may be just fine, especially if you really like the investment options and have easy access to track progress. But the worst thing that could happen is that you have a large balance in a legacy account that has terrible investment options, and you completely forget about it for years. This outcome is totally avoidable, so don’t let laziness win out.
Roll it into an IRA
This option is the most flexible, and you don’t need to already have an existing IRA—you can open one specifically for a rollover. You can use any institution or financial advisor, and you can invest in virtually anything. So if your former and current 401(k) plans are restrictive (e.g. they only allow you to invest in annuities from an insurance company), you may want to use an IRA to provide better investment choices.
Roll it into your new 401(k)
If your new 401(k) plan has great investment options, then this option is best because it’s easier to manage just one account—easier to monitor and easier to implement one cohesive investment strategy. Additionally, while you must reach age 59 ½ to make penalty free withdrawals from an IRA, if you retire, you can access your 401(k) earlier at the age of 55.
Note that these same basic options apply to 403(b) and 457 plans as well. And whichever option you choose, just make sure you monitor its progress and include the balance in your overall retirement planning.
Josh Norris is an Investment Advisory Representative of LeFleur Financial. Josh can be reached at josh@LeFleurFinancial.com.