Should I leave my 401(k) with my old employer, roll it over to a plan my new employer offers, or do something else entirely?
I'm 52 years old and have $50,000 in a 401(k) from my old employer. I now work for an employer that provides a pension, to which 6% of my salary goes, but they also offer a 403(b) and a 457 plan. My current employer makes no contributions to any plan, and I can't contribute to my old 401(k) while it stays with my old employer. Should I leave my 401(k) where it is, roll it over to a plan my new employer offers, or do something else entirely?
I usually recommend a third alternative and that is to roll over funds from any company plan to an IRA after they are no longer employed at the organization. Employer plans usually come with significant fees and expsneses, that come out of your account, and limited investment choices. A rollover IRA will be completely under your control, you may have a fee-only financial advisor help you with the management of the portfolio, and your investment opitons will be more extensive that what was available in the plan. Leaving in it the old plan, or moving it to your new employer's plan both carry the disadvantages of high fees and limited investment options. Also, you may be qualified to make additional contributions to the rollover IRA, depending upon your income level. I wish you well.
Usually there’re three options for an old employer’s 401k: 1) Stay where it is. 2)Move to the new employer if it accepts any rollover. 3) Roll to an IRA. Since all three pretty much have zero tax consequence, the differentiating factor is the investment line-up.
When you roll the old 401k to an IRA, your investment choices expand exponentially. It can be both good and bad. The good news is you have many selections, the bad news is which one to select. You can read up all choices from many websites or work with an investment professional to make the selection, but you need to select right ones for its tax-location. After all, it’s a tax-deferred account.
One of the many reasons 401k is cheap because it offers limited investment choices. The bigger the company, the more negotiating power, and the better investment line-up. Conversely, the smaller the company, the less the selections, and the higher the fees from each underlying choice.
Knowing the differences, you or working with an advisor must review all choices, fees, and make the right call. Hope that helps. Cheers!
It is often advantageous to move an old 401K into a new employer's plan, but you need to look at a few items carefully these days. First, you will want to compare the investment options. Do both plans offer investments that meet your allocation goals? If so, next look at the expense ratios of these investments. Are the fees comparable? Does one plan offer particulalry lower cost options that might help your funds grow more over time? Finally, you need to look at what fees you will be assessed in both plans. Many plans these days charge monthly or quarterly service fees inside retirement accounts. look at statements for the past three months and see if you can determine what you are charged. It might be a deduction to your investment monthly, and it also might be a fixed fee such as $7, $10 or $12 dollars per quarter, example.
Once you have compared these factors, you can determine if one plan might be more advantageous than the other. If both plans seem to have high fees and adminsitrative costs, and you are comfortable choosing some of your own investments, you might consider rolling the old 401K into a self-directe IRA. Firms like Charles Schwab, Fidelity and Vanguard all can help you open an IRA and even suggest basic investment allocations that might fit your needs.
You have three choices for the funds in your old 401(k) plan. The two you mentioned (leaving it where it is or rolling it over to your new employer) and rolling it over to an IRA. The best option for you would depend on several different factors. Considerations related to the two main factors are below to help you in making your decision.
The main advantage of rolling the funds into an IRA is you will have more control over the investments and the costs of the account. Typical 403(b) and 457 plans are notorious for having high costs and often have very limited investment choices (including potentially only annuities). Many 401(k) plans are also similarly structured with limited investment choices, high cost funds, and high account fees. Check to see the investment choices and costs of your old 401(k) plan and your current employer's plans. If they are high or you have poor investment choices, consider rolling the funds into an IRA where you can have more investment choices and lower fees.
The main advantage of leaving the money in your 401(k) or another ERISA qualified plan is that they are protected from creditors. If you are exposed to significant liability or have a high chance of being subject to a lawsuit, leaving the money in the 401(k) might be a better idea.
You may also wish to speak with a fee-only and fiduciary planner to help you in making this decision.
If you might be feeling uncertain, would it be wise to compare additional options and choices you have with an IRA?