Hi Susan! I am a fan of simplifying your financial life as much as possible, so combining your three separate 401(k) plans may be a good opportunity for you. Many sponsored plans do not give much education and advice for participants, so having an advisor who can help you combine them into one account, review the fees, and set an appropriate asset allocation as you head toward retirement sounds like a good plan. Find an advisor you are comfortable with so you will have a 'go to' person for those financial questions that will come up as you move toward retirement. Having good chemistry may be more important than just running some numbers.
If you are leaving the company and you keep your 401(k) account in the current plan you may be limiting your retirement plan options and investment allocation flexibility such as types of investments you have access to like individual stocks, bonds, ETFs, etc. When a company sponsors a qualified retirement plan it is governed by the plan documents along with ERISA rules and regulations, especially distribution options. You should check with your HR department to find out if you can leave your account with them even if you are no longer employed by them. If your account balance is less than $5,000 they may have a right to force you out of the plan. Some of the distribution options available to you when you separate from a company include 1) transferring the money to an Individual Retirement Rollover Account (IRRA) or 2) transferring your account to your new employer’s 401(k) account if the new employer plan allows. In both cases you would not be subject to early withdrawal penalties or taxes. If you decide to take a distribution in cash, you are subject to taxes and depending upon your age may be subject to early withdrawal penalties as well.
It is always wise to consult with an experienced financial advisor and tax consultant to determine the best option for your particular situation. If you would like to contact us for assistance you can call 415-345-8185 or email email@example.com .
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Susan, The only time I would recommend leaving a 401K with a former employer is when your have serious concerns about being sued. In that case, qualified plans are better protected (i.e. O.J. Simpson, whose qualified retirement plan could not be touched). If that's not a concern, you should probably roll your 401K into an IRA. Doing so will provide you infinitely more investment options at a lower cost, perhaps no cost, Most 401K plans charge ongoing fees which don't necessarily provide you any benefit and limit your investment options to a small number of mutual funds. Even plans with more options can't compete with the number of options you'll have with an IRA, where you can invest in individual stocks and bonds, mutual funds, etc. Although I generally don't recommend it, you can even own real estate, collectibles and other alternative investments in an IRA. Please let me know if you additional questions.
Hello Susan, Generally, from an portfolio construction point of view, it often more advantageous to roll your 401k to a self-directed IRA when you separate from your company. You have many more options from which to build a portfolio - which can increase your returns and reduce your risk over time. Additionally, many 401k plans are laden with fees which can reduce your return - but this situation is getting better as plan providers are becoming more competitive and transparent about their fees over time, and the public, (and regulators) are paying more attention to the fees being charged.
That being said - it can be helpful to remember that you can take withdrawals from a 401k plan without the normal 10% tax penalty as early as age 55 if you are separated or retired from the employer that sponsored that 401k. So - if you are laid off, disabled, or for some other reason choose to retire from active employment earlier than the IRA accessibility age of 59 and 1/25 - then this particular account may be a source of funds for you to use. If you roll those dollars in to an IRA - then you lose that flexibility and those funds cannot be accessed until age 59 and 1/2 without the 10% tax penalty for early withdrawals (barring the standard exceptions such as first time home purchase, etc).
Ultimately, I would suggest that you consult with your financial advisor and make this decision in the context of your entire plan, and not in a vacuum. In my career, I have run across a number of individuals who arbitrarily rolled 401k funds into an IRA - and then, at age 56 or 57, wished they had easier access to those funds. So, there are arguments on either side, and the particulars of your personal situation should be taken into account at the time of the decision.
Jon Castle http://www.WealthGuards.com
Hi Susan, if your former employer's retirement plan included an option for you to hold company stock, there may be a special tax strategy for you to consider prior to the rollover. This tax treatment is called Net Unrealized Appreciation. In a nutshell, its the difference between the current value of the employer stock and the cost you paid for the shares. Be sure to discuss this with your tax or legal advisor if your employer plan contains any employer stock. (The information presented herein is for presentation purposes only and is not intended to provide personal investment advice.)
Susan, simply put, you have more options and more control in an individual IRA than inside a 401(k). Remember this is money intended for your golden years, so if you are going to invest in an IRA, you may want to seek financial advice, or be sure you educate yourself. You want to minimize risks so that your money can grow over time and be there when you need it. Seek advice from trusted friends, neighbors and co-workers to get a feel for how you want to proceed.