Change Jobs Often? How to Handle Multiple Retirement Accounts
If you are like me or many Gen X'ers and Millennials, you have changed jobs a few times in your career. With pensions falling off dramatically (and soon to be extinct), most employers today offer 401k’s, 457b’s, SIMPLE IRA’s, and the like. Hopefully, you were savvy enough to sign up for one, particularly if there was an employer match (100% immediate return on your investment!). If you did, what happened when you left that job? Did you leave it behind? Did you forget about it? Perhaps you changed your address and are no longer receiving statements (out of sight, out of mind). Well, you are not alone! If you find yourself wondering what to do, read on.
I assume you fall into 1 of these 2 scenarios:
#1. I don’t know if I had a retirement plan at Job 1, Job 2, etc.?
#2. I have a retirement plan (or multiple) and I don’t know what I am supposed to do?
This is the biggest question and where most people get stuck. FYI, the answer isn’t always consolidate.
Starting with #1...
If you find yourself wondering if you even had a retirement plan, you have not received an account statement in a while, or ever. This may happen when you move and do not change your address or you signed up for e-delivery and used your work e-mail as the delivery method. Big no-no! Going forward, a best practice is to use your personal e-mail address for these accounts.
Now, your first step is to contact the company (custodian) that may be holding your retirement account. If you do not know who that might be, call your previous employer’s Human Resources or Benefits department. They should know who to contact and be able to provide a phone number.
When you call the custodian and find out you have an account, the phone representative will tell you that you have 4 options:
Leave it there.
Roll it over to your new employer’s plan (if they have one).
Roll it into an IRA.
Take a distribution or withdrawal.
Option # 4 should be your last resort. Not only are there tax consequences and a 10% penalty if you are under age 59-1/2, but you are losing out on potential future investment gains. This is long-term money that should be saved until retirement. Hence, retirement account.
Please note that some account rules will trigger an automatic distribution in the form of a check to you if your balance is less than $1,000. If your balance is between $1,000 and $5,000, your account may have been rolled over into an IRA. This is not always the case, but it is common, so please be aware.
Now that you have taken inventory of your accounts, let’s move on to Scenario #2.
So, you have 4 options, but which is the best? Hint: probably not #4. And frankly, it depends. One question you might want to ask the current custodian is, what fees am I paying? Employer retirement plans negotiate fees on your behalf. As an example, my accounts charge either no maintenance fees or it is minimal, maybe $2/quarter. Also, your investments, typically mutual funds, will have their own expenses. If most of the mutual funds have an expense of 1% or higher, you are probably paying too much. Now, compare that to your new employer’s plan. You may also be able to buy index mutual funds and ETFs (exchange traded funds) through an IRA for a fraction of the cost.
But, fees are not the only factor. You will want to research which investments make the most sense for you based on your age, risk tolerance, and goals. Also, 401k’s, SIMPLE IRA’s, 457b’s, and IRA’s, including Roth, have different rules.
Did I lose you? If so, you may want to ask a Financial Planner for help. We can help you evaluate the fees, investment options, performance, and account types to help you make an informed decision. In addition, if you decide to roll the money out of the current plan, it almost always requires paperwork (from both custodians), and can take up to 30 days to complete. And if you mess up the paperwork, expect a few more weeks to fix it, or worst case, you unknowingly trigger a taxable event. Find a Financial Planner who has experience with retirement planning, particularly rollovers and consolidation. It will not only save you time, but also simplify your life and potentially avoid costly mistakes. #retirement #rollovers #changingjobs #retirementplans #401k #457b #IRA #financialplanner #feeonly