The Rational Investor: How to Rollover Your 401(k)

By Jeremy Sorci | January 21, 2017

At Premier, our advisors work with the participants of company 401(k) retirement plans to help them simply and systematically accrue savings for retirement. 

Jeremy Sorci is a CFP, Certified Financial Planner and a 401(k) Financial Advisor with Premier Financial Group in Eureka Humboldt CountyBut when the time comes to move to a new job (or overtime, jobs) what's a worker to do with each 401(k) they create along the way? Considering that the average U.S. worker stays at a position for about 4.4 years it is easy to see how 401(k) plans could begin to stack up! That easy-to-overlook retirement account(s) now begs some difficult decisions as there are a wide range of ways to roll it over. 

Here's how to choose the right 401(k) rollover options for your financial situation.

401k Rollover Options: Educating Yourself is Key

When it comes to transferring your 401(k) plan to a new job, information is key. But don't worry about memorizing the rules, because those tend to change. Instead, educate yourself as to the key questions to ask your new employer. 

Specifically, you'll want to find out:

  • How much your employer will match in terms of contributions
  • The fee structures (lower fees usually mean higher returns)
  • If the plan allows other assets to be rolled in

You'll also want to research how you can continue to increase your contributions over time. You may want to consider setting up an automatic increase that'll up your contribution percentage every time you receive a raise. Keeping your contributions automated makes it easier for you to save. 

In addition, ensure that you don't have any outstanding loans or withdrawals on the account. If you have a balance on the account, you might not be able to roll it over. Your plan administrator can help you determine how to clear any outstanding debts before you move to your new plan. 

Jeremy Sorci is a CFP, Certified Financial Planner and a 401(k) Financial Advisor with Premier Financial Group in Eureka Humboldt CountyMake Your 401(k) Part of Your Comprehensive Financial Plan

As 401(k) advisors will tell you, it makes financial sense to view your 401k as one piece of your wealth management strategies. Integrating your retirement accounts into your disability and estate planning strategies should be a part of the your comprehensive financial plan. (On a side note, if you have a former spouse, you may need to get their signature before you can put your 401k rollover into action.)

Another factor to consider if you've been with your previous employer for five years or more - company stock ownership. If you own company stock, it may be possible to reap tax benefits; the IRS may also require you to sell this stock in a qualified manner, so speak with your 401k advisor. As any rational investor should, keep capital gains in mind, as well. 

Finally, don't simply assume that you have to roll over your 401(k). It may make more sense to leave your account with your previous employer in certain cases, such as:

  • Your new employer doesn't offer a 401(k) option
  • You're going to be self-employed
  • You need to review your retirement goals before you roll over your 401(k)

Whatever you do, avoid withdrawing the whole 401k in a lump-sum distribution, as you may be subject to a 10 percent early withdrawal penalty as well as income tax. Just don't forget about your 401k and create an orphaned account. Your 401(k) advisor will help you navigate your 401k rollover options. 

Posted in Retirement Planning, 401(k) Retirement Plans