Like boxes in the attic, many people have an employer-sponsored plan from a former job like a 401(k) sitting out there. It's not uncommon anymore to speak with someone who has worked several different companies over the last 10 years, indicative of the fast-paced corporate world and its tumultuous tendency to show more favor to the bottom line than to the people who drive it. If you've participated in a company-sponsored plan and your employment has ended (voluntary or not), you likely have a plan just sitting in investment limbo.
The maximum employee contribution in 2018 is $18,500 (or $24,500 for those aged 50 or older, due to catch-up contributions). Your employer can make matching contributions up to and totaling $53,000 for any one individual. These plans can have a pre-tax component or after-tax component. Normally, a myriad of investments are available as options for growing your retirement assets, in keeping with your desired risk tolerance level.
Knowing what to do with your former plan can depend on your circumstances. You should always consult a professional tax advisor or financial advisor before making any decision. You may not know what to ask your financial advisor, so let's discuss some questions that may potentially bring some light to your 401(k) attic.
1) "What are my options?" This is the most important question you can ask. The answer, depending on your desires and circumstances, could be one of the following:
2) "What are the current fees in my plan?" I'm always surprised that people think their 401(k) is "free." I have never encountered an investment that was "free." Investment companies are not investing your money for nothing. DOL regulation 408(b)(2) makes it mandatory for employers to disclose fees, which include investment expense ratios, plan provider fees, administration and other miscellaneous fees, to each participant.
3) "If I perform a rollover, how will the fees change?" Every investment professional is required by FINRA to disclose the expense associated with each investment in enough detail that the investor clearly understands the obligation.
4) "Is a Roth conversion something I should consider?" The IRS allows you to convert any amount of your pre-tax retirement assets to after-tax Roth contributions. Prior to 2010, only those with an adjusted gross income below $100,000 were eligible for a conversion. (For more, see 5 Secrets You Didn't Know About Roth IRAs.)
5) "If I perform a rollover, what advantages could I realize?" This should get a conversation going regarding the "why" of the rollover. Every investor should match themselves up with a professional who understands what they're trying to accomplish. An advisor should be discussing with each investor the pros and cons regarding rollovers that are based on the investor's specific and current situation.
Your retirement money is important. Know your options completely. Meet with your accountant if your financial advisor isn't up on the tax stuff. And, as always, don't do anything you're not sure of or uncomfortable with.
For more reading, see: Best Ways to Roll Over Your 401(k).