There’s no doubt that 401(k) accounts are an incredible asset to help you reach your retirement savings goals. These employer-sponsored savings plans offer a tax-advantaged way for you to save, often with matching contributions from the employer and multiple investment options. But 401(k)s can become problematic when you change employers, which many Americans do, sometimes more than eleven times throughout their career!
If the majority of your previous employers offered a 401(k), how can you keep track of your accounts when you move on to a new job? It’s a challenge to manage all of these accounts and simultaneously stay committed to a coherent investment strategy for your financial future. It’s not an easy task to track growth, manage fees, and stay diversified if your money is in multiple places. More than one-third of Americans have three or more retirement accounts. Is this you? Do you need to consolidate your 401(k)s into one account?
Why Should You Rollover Your Accounts?
When considering what to do with old 401(k) accounts, many people choose to roll them over into IRAs, or Individual Retirement Accounts. There are many advantages to having your money in an IRA as opposed to a 401(k) plan. You have much more flexibility with the IRA, and you can shop around for low fees and diverse investment options. Instead of being tied to the 20 or so options your company offers, you can invest your IRA in just about anything except life insurance or collectibles. You can even invest your IRA in real estate that you manage through a self-directed IRA. IRAs usually offer more options as to who you can name as a beneficiary or contingent beneficiary of the account.
With all of your money in one place, it may be easier to see the big picture of where you stand financially and manage your asset mix. The IRS even allows you to withdraw earnings penalty-free from your IRA before you turn 59 ½, as long as your account has been open for five years and the money is used for qualified expenses, such as buying your first home, higher education, or medical expenses. Also, unlike your 401(k), your IRA is not tied to a particular employer, therefore changing jobs has no effect on it.
How To Find 401(k)s From Previous Employers
If you’ve lost track of your previous 401(k) accounts, you have some options for hunting them down. The simplest way is to contact the human resources department of your old employer. Not only will they have records of your account, but they will also be able to provide you with the necessary paperwork to make any account changes, such as rolling the money into an IRA.
If you’ve kept any old documents, you can refer to old 401(k) statements that will give you contact information and details on your account standing. If you are still unable to obtain account information from previous jobs, you might find what you’re looking for through the National Registry of Unclaimed Retirement Benefits. This database lets you search for any retirement plans registered under your name. Not every employer is listed, but you may be able to find some of your 401(k) accounts through this resource.
How to Avoid Taxes When Rolling Over Your Money
An important factor to consider when taking steps to roll your 401(k) balances into an IRA is that of taxes. Funds contributed to a 401(k) are taken out of your paycheck pre-tax, so you want to ensure you are rolling the money over in a way that will avoid a taxable event. There are multiple methods of transferring the money over, and some of these can cause a headache if not handled properly.
At Grace Wealth Management, we want you to spend more time doing what you love and less time keeping track of numerous accounts. We can help you with the details and give you peace of mind that your 401(k) balances are being managed with uninterrupted tax deferred growth. As qualified professionals, we want to walk you through your various options and find a way to fit them into your current financial roadmap. If you have an old 401(k) account, contact me today at (949) 631-3840 or jpeters@cfiemail.com.
About Jim Peters
Jim Peters is an independent financial advisor and the founder of Grace Wealth Management Group, Inc., a full-service financial firm committed to helping people pursue their financial goals. With more than 24 years of experience in the industry, Jim combines his extensive knowledge with his genuine interest in helping people pursue financial independence. Beyond his experience, he is certified as both a Chartered Life Underwriter® (CLU®) and Chartered Financial Consultant® (ChFC®), meaning he has advanced training and knowledge in financial planning and insurance. Based in Irvine, California, Jim specializes in working with individuals, families, and businesses throughout Orange County. To learn more, connect with Jim onLinkedIn or visitwww.financialadvisorirvine.com.