Why Rollover My Old 401k?

What are advantages of rolling over my 401k from a previous employer?

According to Monster.com, workers today change jobs every 4.2 years.  For someone starting work at the age of 20 and retiring near 65, that means 11 or maybe 12 employers on their journey.  The days of working for a company for 40 years and then heading to the house are long gone.   

A phenomenon generated by this environment of transitory workers concerns abandoned 401k balances.  Whether you have a long career with one company or have a brief work history, you will want to consider at least if rolling over your 401(k) to an IRA is right for you.  

• Most people do not coordinate investments across accounts.  They then find out that old 401k accounts may be working against each other and the owner’s goals.
• In an old 401k, they will likely: 
  • have fewer investment choices available, and, 
  • they will possibly pay more in annual expenses with being part of that workplace plan.
• There is peace of mind in minimizing the number of accounts, passwords, and entities you possess.  

Perhaps the biggest reason for consolidating 401ks into an IRA is that you can be confident it is positioned or invested in supporting your goals.  

Being intentional about the investments and ensuring their coordination in positioning is a chief part of attaining financial life goals.   

Some reasons make sense for you to not aggregate the old accounts.  For example, you might benefit from certain legal protections. On the other hand, if you are approaching age 72 and are planning on working longer, you may want to at least consolidate your old accounts, perhaps within your current 401k.  These reasons can be advantageous but few and far between, so please see your advisor about those situations.  

When leaving an old job through transition or retirement, there are many good reasons to roll over the workplace plan.  

You can think of your IRA or your new 401k as a backpack that collects and carries your old 401k account balances as you move through life.  Just like you fit items into a backpack for a long hike, you would include these old accounts into the IRA backpack so that they are complementary to each other, working nicely together and not jabbing you in the side, causing you undue pain or annoyance.   Any experienced hiker will tell you to want to have the items you need when you need them, and you do not want them to be a burden by being packed wrongly.  On the other hand, if done correctly, all of your vested retirement dollars will be there if you need them packed away purposefully for your journey.

Wm. Timothy Eichhorn is a Senior Advisor and Partner at Rather & Kittrell. Tim can be reached at [email protected].