Workers over 25 stay at the same job for only around five years, according to the Bureau of Labor Statistics. That means if you participate in your companies’ 401 (k) plans as soon as you are eligible, and you probably should, you could have three different retirement plans while you’re still in your 30s. WIth people changing jobs so often, it’s not surprising they often fail to take their retirement account with them. In fact, the Government Accountability Office found that approximately 25 million Americans who left their job over 10 years, left their 401(k) behind.
Avoiding the abandonment of plans full of your money over the course of your career is just one of the reasons to consider consolidating your retirement plans as you go. Three other big reasons are:
- It’s much easier to manage a single plan
If you’re working hard to update the strategy and balance of your holdings each year,it helps a lot to have all your funds in one plan with the same rules, investment choices and logins.
This becomes even more important when you hit the age of Required Minimum Distributions, most likely at 72. It’s easier to plan your smartest withdrawal strategy to avoid penalties when you only have to keep track of one plan.
- How many annual fees do you want to pay?
Many 401(k) plans have administrative fees and most Individual Retirement Account (IRA) custodians charge an annual fee for keeping track of your contributions and withdrawals for your tax reporting. The more separate retirement accounts you keep, the more fees you pay.
One of the best ways to increase investment returns is reducing the fees you pay.
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Plan one more gift for those you love
Maybe you’re only thinking of your retirement accounts as something for you to enjoy far in the future, but someday they can also be part of your estate planning. Just ask your parents. Imagine how much easier it is for beneficiaries to take on the gift of one consolidated account rather than dozens of individual assets that need to be managed.
Thinking of consolidating your retirement accounts? Here are 6 crucial steps:
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Understand the rules
Make sure you understand rollover rules and all the different options available. Check this rollover chart from out this Rollover Chart from IRS.gov..
- Check one more rule
When you’re eligible to participate in a new 401(k), check the Summary Plan Document to see if a rollover of your existing plan(s) is possible.
- Compare your new investment options and fees with your old plan’s
While having a good choice of funds is important to consider before you move your existing accounts over, and be careful if you have appreciated company stock in an old plan. If so, you may want to keep that account until you’re ready to distribute it.
Don’t forget that not only do many 401(k) plans have administrative fees, other investment options available may have other additional fees to consider.
- Pay closer attention as you approach your planned retirement year
401(k) plans have a 10% penalty for distributions prior to age 59½ years old unless you leave your job with your plan at 55. But those funds have to stay attached to your last employer’s 401(k). If you roll over into a IRA to consolidate that plan, you’ll have to wait until 59½ to withdraw without penalty
Learn even more about your investment choices and the fees you are already paying.
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