A couple years go by and you get a new job, at a new company, because it’s more aligned with what you really want to do.
A couple years later and you are recruited to an even better position at new company.
The reality of the workplace today is that people jump around. And when they do, they get (hopefully) new benefits that will come with new accounts. You should always maximize the benefits your current employer is offering you and get the full match on any retirement contributions.
But when you move on from a company and the matches have stopped, it’s up to YOU to keep track of that account and the money in it.
The number of accounts to manage can add up fast, but there is an easy way to deal with those old 401Ks: Roll them into an IRA (Individual Retirement Account).
The benefits of rolling over your old 401Ks boil down to two main benefits (in my opinion):
1. It’s easier to keep track of your accounts: As you move from job to job, you can roll your 401Ks into the same IRA account. Easy peasy to manage.
2. You have flexible investment options: Generally, employers don’t offer a lot of investment options through their 401K plans, and you might be able to find lower cost investments that better suit your needs elsewhere.
What you need to know about rollovers:
1. You can open up an IRA at any brokerage firm. Places like Charles Schwabb, Fidelity, Ameritrade, Vanguard or even your local bank. Do your research to determine what company is a good fit for you.
2. There are two kinds of IRAs. A Traditional IRA is funded with pre-tax dollars, and you pay taxes when you get distributions down the road. A ROTH IRA pays taxes up front, so you won’t pay any additional tax when you withdraw money.
3. Work with an investment professional to understand the tax consequences of your rollover and what your best strategy should be.
The bottom line is that it is up to YOU to stay informed and up to speed on all the accounts that you have open in your name. Don’t let your old accounts gather dust and sit in outdated investments. To be a good steward of your money you need to do your homework and work with a trusted professional to understand where the best place for your money is. If this is new to you, ask questions to your advisor or brokerage firm. Ask a million of them if you need to, it’s your right to understand the taxes, fees and earnings on all of your invested money.