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How Do I Combine My 401k From A Previous Job

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Rolling Over To The New Employers Plan

What Is The Best Way To Consolidate Multiple 401k Plans?

The main advantage of rolling the money to the new employers plan is the money will have the greatest creditor protection afforded by law. The law that governs 401s and many other employer retirement plans offers you unlimited protection of your retirement money from creditors and lawsuits. This can be extremely important for business owners, surgeons, or others who are at a heightened risk of being sued.

I often advise clients with a heightened risk of lawsuits to leave money in their 401 for the asset protection provide provided under ERISA. If you are exposed to significant liability or have a high chance of being subject to a lawsuit, leaving the money in the 401 is likely the better idea. If youve received advice to roll over to an IRA and would like a second opinion, please feel free to schedule a no-cost consultation.

Can You Combine 401 Accounts In Another 401 Plan

Whether or not you can combine 401 accounts into another 401 plan depends on the 401 plan you hope to transfer the funds into. Some plans are more flexible about transferring funds from other plans. You can check with the human resources department at your workplace for more information about what your 401 plan does and doesn’t allow.

Is It Ever A Bad Idea To Roll Over A 401

Before making the switch, consider these factors:

  • You may lose access to special investments available through your employer only. Assets may have to be converted to cash before they’re transferred.
  • You can’t borrow against an IRA as you sometimes can against your 401.
  • You may have to take required minimum distributions from an IRA at age 72, even if you’re still working.
  • IRAs may have less creditor protection if you declare bankruptcy, at least in some states.
  • Most 401s allow you to withdraw money without penalty after age 55. IRAs require that you wait until age 59½ to avoid early withdrawal penalties.

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Roll It Over Into An Ira

Unlike a 401, which is sponsored by an employer, you can open an IRA on your own. You can choose from either a traditional IRA or a Roth IRA, both of which give you many investment optionsa plus if you feel the 401 choices are too limited. For 2020, the annual contribution limit for both types of IRAs is $6,000, .

Roth IRAs are restricted to people below certain income levels, and contributions you make to them aren’t tax-deductible however, money withdrawn in retirement is tax-free. With a traditional IRA, contributions may be tax-deductible depending on your income and whether or not you have another retirement plan, but you’re taxed on withdrawals you make in retirement.

Whether you’re rolling over to a 401, traditional IRA or Roth IRA, make sure to roll the money directly from one retirement account to the other to avoid taxes. If your plan administrator writes a check with your name on it, that distribution is automatically subject to 20% tax withholding, even if you intend to roll the money over later.

Leave It With Your Old Employer

Should I roll over my 401(k) when I move to a new job  and if so, how ...

As long as your 401 balance is $5,000 or more, you can leave the money in your former employer’s plan. Doing this for a relatively short time may make sense. For example, if you were laid off and don’t have a new job yet, you may want to leave your existing 401 as is until you get a new job that offers a 401, and then do a rollover .

Technically, your 401 money can remain in your former employer’s plan as long as you want it to, but there are some good reasons not to leave it there indefinitely. For one thing, if you start contributing to a 401 plan through your new employer and leave your existing plan intact, you’ll be paying fees on two accounts. These costs can quickly add up, which will eat into your investment earnings. Additionally, if your focus is split between two accounts, you may not be as diligent about monitoring your account and rebalancing your investments as you would if you were concentrating on one plan with your current employer. Another hazard: Your former employer could go out of business. If this happens, your 401 balance is still safe, but accessing the account or rolling over funds may become more complicated.

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Its Easier To Take Advantage Of Roth Conversions

As you get closer to retirement, converting traditional IRA dollars to Roth dollars can be really advantageous as you drop into lower tax brackets. Theyre not for everyone, but they can be a powerful planning tool and you can only do them with an IRA.

Another thing to keep in mind when talking about Roths: RMDs are never required with a Roth IRA. But if you have a Roth 401, you have to start taking them when you turn 70½. So, at the very least if you have a Roth 401, youll want to consider rolling it over to a Roth IRA to avoid the hassle of RMDs.

Pro #: You May Gain Flexibility

Your new employers plan may have different investment options, loan options, protections against potential creditors, or other benefits that better suit your needs than your former employers plan. If you continue working until and beyond 72 years of age, you may be excused from required minimum distributions if your new employers plan allows it.

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How A Roth Ira Conversion Can Leverage Currently Low Tax Rates

One of the potentially overlooked silver linings of the past years economic challenges is a favorable income tax environment created by the 2017 Tax Cuts and Jobs Act. If youre considering a Roth IRA conversion1 from your 401, youll be paying some of the lowest tax rates in history on those converted assets and doing it all at one time. However, if you went with a traditional IRA rollover, you may pay higher taxes in retirement on your RMDs.

If youve lost your job, or your income level drops, you can convert your 401 assets at your new, lower, tax bracket. Say, for example, you convert your 401 assets to a Roth IRA, you may be paying taxes at a reduced rate right off the bat, explains Markwell. And if taxes rise between now and your retirement target date, at which time youd otherwise take distributions, you will have further benefited tax-wise from that earlier conversion.

Keep in mind that establishing an IRA with efficient growth goals may call for more active management on your part, depending on your retirement goals. A financial professional can help tailor your investments to your individual strategy and also help you revisit and refine that plan as needed.

This Tax Information Is Not Intended

changing 401k plans

This tax information is not intended to be a substitute for specific individualized tax, legal, or investment planning advice. Where specific advice is necessary or appropriate, Schwab recommends that you consult with a qualified tax advisor, CPA, financial planner, or investment manager. Depending on the type of account you have, there are different rules for withdrawals, penalties, and distributions. Please understand these before opening your account.

A rollover of retirement plan assets to an IRA is not your only option. Carefully consider all of your available options which may include but not be limited to keeping your assets in your former employer’s plan rolling over assets to a new employer’s plan or taking a cash distribution . Prior to a decision, be sure to understand the benefits and limitations of your available options and consider factors such as differences in investment related expenses, plan or account fees, available investment options, distribution options, legal and creditor protections, the availability of loan provisions, tax treatment, and other concerns specific to your individual circumstances.

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Con #: You Have No Choice In What Funds Your Former Employers Choose

Since your former company administrates the retirement plan, youll only be able to select funds from the options they provide. For example, if youve read some great information about a mutual fund that focuses on sustainable agriculture but your plan doesnt offer it, youll need to go elsewhere to invest in it. You’re losing the flexibility that you could have with a traditional or Roth IRA, adds Markwell.

Option : Rolling Into An Ira

Rolling all old 401 accounts into a Traditional IRA of your choosing is a popular choice that allows you maximum control over the investments within the account.


1. You choose the institution

You get to choose where to open your individual retirement account. By choosing an institution, you can choose somewhere that tailors specifically to your needs. You will have control over your investment choices and whether to use an institution that charges for certain services.

This may be especially important if the institution that holds your current 401 charges account maintenance fees or only offers high-cost investment products.

2. Youll always control it

You open a Traditional IRA on your own and without an employertherefore, a Traditional IRA is always and only yours. Some people may find it helpful to think of a Traditional IRA as a home base for their tax-deferred money. As you move through your career, you can roll old 401 accounts into a Traditional IRA thats not going anywhereits your home base.

3. More investment options

As compared to some 401 programs, a Traditional IRA opened at an institution of your choosing may have more options for investing.


1. You may still have multiple accounts to maintain

Even if you open a Traditional IRA, you may still want to contribute to your active 401. Therefore, you will need to maintain at least two retirement accounts.

2. It may complicate a backdoor Roth IRA

How to do it:

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Options For Your 401 Or 403

I Changed Jobs. What Should I Do with My 401(k) Account?

When you leave your job, you have four options for what to do with your 401 or 403:

  • Cash-out
  • Keep your money where it is
  • Roll your 401/403 to your new employer
  • Roll your 401/403 to an individual retirement account through a financial services company like Vanguard, Schwab, or Blackrock.
  • Before going into these options, its important to note that a 401, 403 or an IRA is an account.

    Within these accounts, you can choose between a variety of investment options with varying fees, risk profiles, and returns .

    You can think of an IRA or a 401 like choosing the restaurant where you want to eat. Once youre there, you have a variety of menu options at different price points, flavor profiles, and nutritional value.

    An employer-sponsored plan offers curated investing options. When youre in an employer-sponsored plan, you dont get to choose the restaurant.

    If your employer has chosen Chipotle, you can choose a Carnitas burrito or a vegetable burrito bowl. But youre out of luck if youre in the mood for tomato bisque.

    In contrast, choosing an IRA gives you the choice of what restaurant to go to. And what menu options to select.

    You can choose to go to Whole Foods where you can affordably eat sushi, pizza, or the hot food bar. But you can also choose a fancy restaurant at a higher price point but with more personal attention.

    Returning to the four options for your old 401 or 403, cashing it out is the worst option.

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    Don’t Consolidate Employer Stock

    The biggest incentive to keeping separate 401 plans is for the benefit of any employer stock you hold in that company’s plan. Employer stock receives special treatment when you distribute it from the plan: the amount you originally paid for the stock is considered ordinary income when you distribute it, and any gain on that is taxed at the lower capital gain rate when you sell the shares. However, if you hold no employer stock in the plan, or if the administrative fees are too high, this might not be much of an incentive.

    Keep Tabs On The Old 401

    If you decide to leave an account with a former employer, keep up with both the account and the company. People change jobs a lot more than they used to, says Peggy Cabaniss, retired co-founder of HC Financial Advisors in Lafayette, California. So its easy to have this string of accounts out there in never-never land.

    Cabaniss recalls one client who left an account behind after a job change. Fifteen years later, the company had gone bankrupt. While the account was protected and the money still intact, getting the required company officials and fund custodians to sign off on moving it was a protracted paperwork nightmare, she says.

    When people leave this stuff behind, the biggest problem is that its not consolidated or watched, says Cabaniss.

    If you do leave an account with a former employer, keep reading your statements, keep up with the paperwork related to your account, keep an eye on the companys performance and be sure to keep your address current with the 401 plan sponsor.

    Keeping on top of how the plan is performing is very important as you may later decide to do something different with your hard-earned money.

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    Advantages Of A 401 Or 403 Rollover

    First, you can pick an IRA provider who is known for their commitment to low fees and investment variety.

    Certain IRA providers like Vanguard, Blackrock, and Schwab are known for their transparency and commitment to low fees. Many charge no administrative fees on IRAs with over $10,000 and offer expense ratios less than 0.2% on a large variety of investments.

    In addition, while a 401 or 403 will offer a curated list of investing options, an IRA will give you access to a much larger list of funds.

    The going wisdom used to be that the buying power of a large 401 plan would get you better pricing than going it alone. However, in a world where there are NO-fee mutual funds, you dont need your employer to get access to cheap investment options.

    Plus, if you want to invest in socially good funds or other specific accounts, you probably wont have access through an employer plan like you will through an IRA.

    Second, you can see all your money in one place.

    As noted above, most financial experts advise that you invest in risky assets like stocks when youre young and shift to more conservative investments like bonds as you get closer to retirement.

    Its much easier to make sure your money is invested strategically and that your savings are on track for retirement when its in one account with one password and one fee disclosure.

    Third, even if your 401 or 403 is performing well, you can probably get that same growth at a lower cost in an IRA.

    Ira Rollovers For 401 Plans

    Is it better to consolidate multiple 401ks?

    Some 401 account holders may not have an active plan. Combining 401 accounts into one isn’t an option since those accounts won’t take new contributions. However, any 401 owner can rollover their accounts into an IRA, which offers some advantages to a 401. If you roll over into a 401, you are limited to the investments that your workplace plan offers — including fees. If you choose to roll over into an IRA instead, you have control over the company with which you invest, the individual investments themselves and the costs and fees you will pay.

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    Changing Jobs Options For Your 401 Plan

    Make the smartest decisions for your retirement plan as your career evolves.

    • Employees who leave their companies have several options when it comes to their 401 plans, and each option has advantages and disadvantages.
    • Options include keeping your existing plan where it is and starting a separate one at your new company, rolling it over to an IRA, or transferring it to your new companys plan.
    • While its tempting to take a 401 distribution in cash to fund a dream vacation or other treat, it carries serious consequences and is not a good option for most people.

    If you have a 401 plan, you are familiar with the benefits afforded by these popular retirement accounts. They are a great way to set aside pre-tax earnings and enjoy tax-deferred investments that can grow handsomely over the years, especially if your employer matches your contributions.

    But what will happen to that nest egg if you leave your company to take another job? Maybe little or nothing at all, if you transfer the money to another qualified plan. Or, you might face a big tax bill and a government penalty if you prematurely withdraw funds. It depends on what you decide.

    Employees who leave their companies have several options when it comes to their 401 plans, and each option has advantages and disadvantages.

    Keep your old 401 where it is and start another one at your new job

    Roll over existing 401 assets to an IRA and start another 401 at your new job

    Take some or allof the money and run

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