Should I Roll Over My Dormant 401(K)?

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Did you know you can move your old 401(k) to an IRA? If you have a prior 401(k), 403(b), or another similar retirement plan from an employer and no longer work for that employer, you can opt to move that money to an IRA. Many people don’t roll over their previous accounts for various reasons: don’t have enough time, forget about the account, or are totally unsure how to do a roll over. Whatever the reason, if you are asking “should I roll over my 401(k)?, we have a few reasons why you should in our 401(k) roll over guide.

Why roll over your old 401(k), 403(b)?

Leaving your 401(k) at a previous employer is an option, but rolling your account to an IRA has many benefits for you and your family. One of the main reasons is if you are concerned the money is not being well managed. This could be a variety of concerns ranging from high costs to limited investment options, poor customer service, and more. Also, if you want to contribute additional money to retirement, having an IRA account is a wise move, as you cannot contribute to a 401(k) account if you are not employed by that employer.

Another consideration is if you’ll be retiring soon. Moving your money to an IRA if you are soon to retire and begin taking distributions may not make sense. It is best to check with an advisor on your options.

Beyond the costs and fees, your investment options are limited in a 401(k) or 403(b). Moving this money to an IRA account provides a larger range of options to build a balanced portfolio. See further down for more benefits of rolling over your 401(k).

How do I roll over my 401(k)? – 401(k) roll over guide

Rolling over your 401(k) is often easy, but intimidating. Each institution has their own process. Here is a quick 401(k) roll over guide process to help. It can be helpful to involve a financial advisor if your institution has a more complex process.

  • Identify where your 401(k) is: what institution has your company’s 401(k) account? This can be an institution like Fidelity or GreatWest. If you are unsure, check your account statements or contact your former HR department.
  • Next, you’ll want to set up an IRA account with the institution of your choice. Sometimes the institution where you had your 401(k) will provide an option to open an IRA with them. The type of IRA you want to open depends on the type of 401(k) you have:
    • If you have a Traditional 401(k) then you’ll need a Traditional IRA.
    • If you have a Roth 401(k) then you’ll need a Roth IRA.
  • Once your IRA is set up, using the instruction from your institution, it is time to roll the money to your new account. Make sure you do NOT take a cash distribution from your account. This can lead to tax implications and penalties. You’ll want to indicate this is for a roll over account, institutions are mostly straightforward with this, and their account service teams can help.
  • Processing the roll over can take a few days or a few weeks. Once the money is in your IRA, you’ll need to choose new investment options. Having the support of a financial advisor can really help ensure you make the right investment choices in your IRA.

Benefits of an IRA roll over account

So why not just leave your old 401(k) or 403(b) with your previous employer? While this option is more convenient, there are several risks to consider when leaving your account where it is. Here are a few benefits and points to consider when moving your old retirement account to a roll over IRA:

  • More investment options – your previous 401(k) is often limited to a few investment options. These options can have high expense fees, on top of any fees charged by your institution. By rolling to an IRA, you’ll have more investment options and often lower costs.
  • Keep track of your investments, no risk of forgetting an old account. According to the Bureau of Labor and Statistics (BLS), those born between 1957 and 1964 had an average of 12.4 jobs. That could be up to 12 separate 401(k) accounts! The opportunity to forget one of these accounts and leave valuable money behind is high. Rolling over your account to an IRA will help you keep track of your retirement money.
  • Save money on fees. Your employer’s 401(k) or 403(b) plan has costs associated with them. Whether the institution is providing “free” advising services, specialized funds, or other services, this comes at a cost. Sometimes the employer passes this on inside the account. By rolling your account over, you avoid those fees. Just be sure to research any fees for your IRA account outside of your investment options.

Should I roll over my 401(k)? Yes!

Any financial advisor worth their salt will say yes. The benefits far outweigh the time and effort it takes to roll over your account. Whether you do it on your own or hire a financial advisor is really up to you. Our team at The Retirement Planning Group can help with your 401(k) rollover and choosing new investment options. Schedule your complimentary 10-minute guidance call today. Not only can we help you with your 401(k) rollover, but we can also advise on building a comprehensive wealth management plan to support your lifelong goals.