If you have been hired for a new job, you may have left your 401(k) behind and would like to bring it to your new place of employment. You can certainly do that, and the process isn’t difficult. But there are a few strategies you can employ in doing so, if you’re trying to transfer your 401(k) to a new employer. Here are some routes you can take and what each means for you.
When considering moving a tax-advantaged account, it’s wise to work with a financial advisor.
Differences Between a Transfer and Rollover
Transferring over a 401k to a new employer is a pretty straightforward process. A 401(k) transfer occurs when both retirement accounts are of the same type. So if you have a 401(k) from your old employer and want your funds with your new employer’s 401(k), a transfer occurs. This is not the same as a rollover.
With a rollover, you’re moving your funds between two different types of retirement accounts. For example, if you have a 401(k) account and you’re looking to move it to a traditional IRA, this is when a rollover occurs. Or if you moved your traditional IRA to a SEP-IRA, a rollover would occur here as well.
Overall, when it comes to a 401(k) transfer, you simply need to make a decision on how you want to do it, or if you want to do it. It’s also clear what you don’t want to do – leave a 401(k) behind and forget all about it.
Capitalize, a financial services company that specializes in 401(k)s, estimated in 2021 that at the end of the year that there were going to be almost 25 million abandoned 401(k) accounts. That’s worth about 20% of all 401(k) assets in the United States.
But you have time to think about what you want to do – lots of time, in fact. There is no time limit that you’re under to transfer a 401(k). You can do it as fast or as slowly as you like. But while you have time, if you’ve switched jobs, and your new one doesn’t have a 401(k), you may not want to take too much time deciding what to do.
Options to Consider
As far as the 401(k) plan at your previous employer goes, your options are as follows:
How to Transfer a 401k to a New Employer
If you decide that you do want to transfer for your 401(k) to a new employer’s plan, you will want to contact the 401(k) administrator at your new company. You’ll tell them you want a direct transfer from your old 401(k) plan to the new 401(k) plan. Or you might say you would like a trustee-to-trustee transfer or a direct transfer. They’re all the same phrases for the same thing – transferring your 401(k) from one employer to another.
You probably won’t have to do much other than provide some basic information about the company you worked for and the 401(k) plan you had. Chances are, your new company’s 401(k) administrator will talk to your old company’s 401(k) administrator, and arrange everything, and you won’t have to do anything except focus on your new job.
How to Roll Over Your 401(k) to an IRA
Think about rolling your 401(k) over to an individual retirement account (IRA). You will want to give this some thought, though. IRA fees are often more expensive than 401(k) fees since employer plans can negotiate lower fees. With an IRA, the individual who opens up an IRA on their own generally can’t.
Transfer it to your new employer’s 401(k). For most people, this is probably going to be your best option, especially if you’re a long way off from retirement.
Leave the 401(k) Where it Is
If you have $5,000 or more in your account (less than that, and depending on how much you have in it, your 401(k) will be rolled into an IRA or cashed out). In many cases, you will want to roll it over to a new employer. But there can be cases where it’s better to leave it where it is.
If you feel like it’s a good plan and if there is a lot of money in there, you might decide to leave it alone, as long as you’re comfortable with the fact that you can’t contribute any more to it. Why would you do that? Perhaps you’ll be retiring fairly soon and just feel like it you’d rather not transfer it anywhere. But, as noted, many people move on from jobs and evidently forget about their 401(k). You’ll need to monitor the 401(k) and include it as part of your retirement portfolio.
It’s easy to forget that your 401(k) from your old employer isn’t automatically transferred to your new employer. But once you remember where it is, it’s important to review your funds. Then, you can decide if you want to transfer them over to your new employer, cash out if it’s below $5,000 or leave it where it is. Just know that if you leave your 401(k) with your old employer, you can’t make additional contributions to it.
Tips for a Financially Successful Retirement
- No matter how close or far you are from retirement, juggling all of your accounts and investments on your own can get difficult. A financial advisor can take a comprehensive look at your finances and help manage your money on your behalf. SmartAsset’s free matching tool matches you with up to three vetted financial advisors in your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
- During the retirement planning process, it’s important to think about the retirement tax laws of the state you want to retire in. By minimizing your retirement tax burden, you can maximize the value of your savings in retirement.
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