401K - Question

blondie42107 · July 2016

So I have a 401K with my previous employer (I was there over 8 years) and my new employer. I'm trying to figure out if I should move my old one into my new? They are through different companies. I've not had to do this before so I have no idea what my options are. Any thoughts and suggestions are greatly appreciated!

jtmh2012 · July 2016

Well, I'll tell you what I do. I have a financial advisor I kinda carried forward with me from my first job. We have a couple rollover IRAs and every time I leave an employer or my wife does, we roll our 401ks into those. I'm generally a believer in not leaving things like that behind. Especially in my business. Companies get bought all the time. Companies move their 401ks around. The 401k companies themselves merge, etc. Trying to keep track of that for your entire working life. Plus some charge fees for "inactive" accounts.

If you don't tend to change companies all that often and/or don't have an advisor, you could just roll it into your current 401k.

I think @hoffse tends to recommend Fidelity if I remember right. I'm not sure how their advisors are as I've never used them, but they do hold my current 401k, so I can't say anything bad about that.

blondie42107 · July 2016

jtmh2012 said:

Well, I'll tell you what I do. I have a financial advisor I kinda carried forward with me from my first job. We have a couple rollover IRAs and every time I leave an employer or my wife does, we roll our 401ks into those. I'm generally a believer in not leaving things like that behind. Especially in my business. Companies get bought all the time. Companies move their 401ks around. The 401k companies themselves merge, etc. Trying to keep track of that for your entire working life. Plus some charge fees for "inactive" accounts.

If you don't tend to change companies all that often and/or don't have an advisor, you could just roll it into your current 401k.

I think @hoffse tends to recommend Fidelity if I remember right. I'm not sure how their advisors are as I've never used them, but they do hold my current 401k, so I can't say anything bad about that.

I love Fidelity! That's where my old 401K is through but my new one is not. I'm pretty sad about that. I work(ed) for non profits that without going into a ton of detail, aren't going anywhere. So my previous employer isn't going anywhere and neither is my current because of where the funding comes from. Although they say "never say never." lol I spoke with Fidelity when I left my previous job and they told me I could keep it where it's at or roll it into my new 401K. Any advantages of doing the IRA?

smerka · July 2016

The main reason for doing a rollover Ira is you have more control over what you're invested in than in your 401k. Also you are more likely to find funds with cheaper fees than your 401k. Another advantage to a rollover IRA is that if you have the money to pay the taxes, you can convert the funds to a Roth IRA. Just make sure the money goes from your old employer to the IRA directly.

hoffse · July 2016

You typically have more investment options with an IRA than a 401(k), and the fees are often lower. Also, even with stable employers plans change all the time. I've actually started writing/amending 401(k) plans in the last year, and sometimes the changes to the plan don't favor the employee. You just never know, and you have a lot more control if your money is parked in an IRA.

I would roll it over to an IRA and then convert to a Roth IRA if you can take the tax hit, especially if you are young. Tax-free growth is incredibly valuable.

Typically you can only contribute $5500/year to an IRA, but changing jobs is one of the few exceptions to that. Take advantage of it!

If by some chance you have been contributing to a Roth 401(k) this whole time, you won't have to pay additional taxes to do a Roth IRA conversion.

I recommend Fidelity, just because it's who I use, and I like them. Plenty of other companies are great too though - Vanguard, Schwab, etc. If you already have a relationship with one of them, make it easy on yourself and keep your accounts together in one place. All of them will be able to walk you through rolling over your 401(k) to an IRA and then converting to a Roth IRA (if you choose to do that last step).

blondie42107 · July 2016

@hoffse or anyone else -

So in general, is it better to have all funds with the same company or should I just get my old 401K removed from my former employer?

LillibetteV · July 2016

I'm in the process of rolling all of my old 401(k) plans into one Fidelity IRA so that I can manage them easier and I don't forget about any (I have one for literally $14 from when I was a student and I need to roll it over just so I don't keep getting statements for it lol).

The 401(k) for my new employer will be through a different company but two accounts is easier for me to manage than four. I use Fidelity because that's where my first (and largest) 401(k) was and the rollover was just easier. I've opened up a taxable investment account there too and I love the customer service.

jtmh2012 · July 2016

blondie42107 said:

@hoffse or anyone else -
So in general, is it better to have all funds with the same company or should I just get my old 401K removed from my former employer?

Assuming your old 401k isn't going to charge you any fees (some will charge an account maintenance fee if you're not longer employed there and/or contributing) and you're sure you'll be able to track it down later, you could leave it there as long as you like how it's been performing.

My suggestion is to at least roll it into your current 401k. The main reason being that while I know you said your prior employer is stable, they could possible change 401k providers. Now I know that doesn't sound bad, but depending on how close you are to retirement, do you want to be trying to find it in 30, 40, 50 years?

smerka · July 2016

It is not so much better, but it is easier to have things all in one place.

jtmh2012 · July 2016

I found this on a deposit/savings blog site that I read. Another reason that it might be better to do a rollover...

Escheat: The power of a state to acquire title to property for which there is no owner.How is it determined that an IRA has no owner? This will depend on both state law and the procedures in place at the institution holding your IRA or employer plan assets. Some typical hints could be mail that is returned marked undeliverable or accounts where there are no transactions.If you have an IRA or an old employer plan where you are no longer making contributions, then there are no transactions taking place within the account. This could leave the account open to escheatment.How can you tell if your retirement account has been escheated? You should be getting statements for each of your retirement accounts. For IRA accounts, you should also be receiving a Form 5498 each year that tells both you and IRS your year-end IRA account balance. The form is informational only and is required to be issued by May 31 each year. If you are not receiving statements or Form 5498, your account may have been escheated.There is a process for the escheatment of funds. The process generally includes some method for finding the owner of “unclaimed” assets. There is also a waiting period before assets revert to the state. Most states have a five-year waiting period, but some states are now using a shorter period to help make up their funding shortfalls.Many times what is escheated is cash from unclaimed refunds, insurance policies, or bank accounts. There is usually no tax consequence for these transactions. But retirement accounts are different. When they are escheated, they are generally cashed out. The state does not want to hold your investments and retain them in a retirement account for you. They want cash to pay their bills. This creates a taxable distribution to the owner of that account. If the owner does not receive a 1099-R for the distribution, then they do not know about the escheatment and don't include the distributed amount on their tax return.When your retirement funds are escheated are they gone forever? Generally, no. The states have procedures for you to reclaim your funds. When you get your retirement funds back, you will have two choices. Keep them as non-retirement funds because you have already paid the tax on them or are in the process of doing so, or return them to an IRA account.Returning your escheated assets to a retirement account may not be as easy as putting them in an IRA. Usually you are replacing the IRA assets a year or more after they were escheated. You will most likely have to go to IRS for a private letter ruling to get their approval to complete a rollover. This is a costly and time consuming process. The IRS fee for this ruling is $10,000 and you will have to pay a fee to someone to prepare the ruling request for you. Then there is a waiting period while IRS reviews your request and makes a decision.Bottom line, avoid escheatment. Check up on your retirement accounts regularly. Make sure you are receiving statements. It is generally a good idea to consolidate old accounts to make this process easier to manage. And watch out for inactivity. You may need to make a contribution or take a distribution, even if it is a very small one, to keep the account “active.”

blondie42107 · July 2016

Thanks! I'm working on rolling my old 401K into my new one.

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