Should You Roll over Your Old 401k?
Who has an old 401k laying around?! 🙋🏼♀️
I met with someone recently. We looked at her old 401k and realized that she was being charged hundreds of dollars a year just to have it sitting there.
In 2023, there were 24.3 million forgotten 401ks just sitting around!
Over 1 trillion dollars are left behind because of job changes, and often, those dollars are assessed fees for just sitting around.
Yikes! 😬
There are many reasons not to leave an old 401k lying around. The fees and potentially forgetting about your hard-earned money later in life?!
No, thank you!!
Whatever you do, don’t leave it behind!
So, what happens when you get a new job and have a 401k with your old company? Let’s look at the options available to you!
Options for rolling over a 401k
1) Leave it there
You could choose to leave your money where it is. This is my least favorite option, though, because it’s so easy to forget about it.
401k contributions are taken out of our checks before we even see the money. This is great since we are investing on autopilot, but it also means that we could literally just forget they were in there in the first place.
Leaving money on the table? Pass.
Leaving your money in that account can make it harder to find later.
Your company could go out of business or be acquired by a new company. They own the vestibule for the money, so wherever they go, so does your money, even though it’s technically yours. When you’ve decided you’re ready to retire, you don’t want to have to track down all of your investment accounts to see where you want to pull $$$ from!
Keeping everything in one place will make it easier to find and give you a clearer picture of how much you have to work with.
Just like my friend I worked with, who found she was paying hundreds of dollars a month because her old 401k was sitting around, there are potentially high fees associated with old 401k accounts. You don’t want to spend one cent of your hard-earned money on maintenance fees!
2) Roll over your old 401k into your new company’s 401k
Rolling over your old account into your new company’s 401k is my second favorite option because it helps you keep your money organized in one place and ensures you’re not forgetting about it.
This option is not perfect though. First, not all companies allow it, so it’s important to see if this option even exists.
When you roll your money over into your new company's 401k, there is also the potential for high fees and limited investment options. While this is a better option than option #1, I still don’t love it because you’re not in complete control of your money—it’s your money, so you should be in the driver’s seat!
3) Roll over your old 401k into an IRA
This option gives you complete control and endless investment options. You can decide where to roll it over to (e.g., Vanguard to eTrade, Fidelity to Charles Schwab, etc.), and there are much lower investment fees!
How to roll over a 401k
So rolling over an old 401k isn’t necessarily complicated, but some work needs to be done, and you may have some questions along the way.
Here are some things to keep in mind:
If your previous company’s account is in Fidelity and your new account is in Fidelity, there’s literally a button that says rollover. Easy peasy.
Moving platform to platform can get a bit tricky though. While keeping all of your money in one spot is worthwhile, changing platforms can involve more work.
Sometimes, when changing platforms, they will have you fill out a bunch of information and then mail you a paper check.
Then you need to remember to take that check and put it into your account within a certain amount of time. Otherwise, you could pay taxes on that $$$ if you don’t do so within the established timeframe. That can be pretty terrifying, so I have a resource for you that will do all of that work for you. Keep on reading.
Can I roll over a 401k to a Roth IRA?
The short answer is yes, you can roll over a 401k to a Roth IRA. But it depends on the type of 401k you have.
Traditional 401k 👉 roll over to a Traditional IRA
Roth 401k 👉 roll over to a Roth IRA
Have some Roth and some traditional? 👉 send them to their correct buckets (Roth goes to Roth, traditional goes to traditional)
Remember, the traditional IRA and the Roth IRA have different tax rules, so you want the accounts to align to avoid what we call a “taxable event” (because that just sounds un-fun).
Backdoor IRA
One caveat to all this you’ll want to keep in mind is if you are someone who wants to do a Backdoor Roth IRA. If you are someone who is over the income limit for a Roth IRA, you can do the Backdoor Roth IRA…IF you don’t have a Traditional IRA open, that is. So when deciding where you want to roll those old 401ks over to, keep this in mind. You may want to go with Option 1 or Option 2 so you can continue to take advantage of this loophole.
It may be helpful to consult your trusty tax advisor if you’re using the Backdoor IRA method and want to rollover a 401k.
Capitalize
As always, there’s no gatekeeping here when it comes to getting our financial sh*t together.
So, I have to tell you about a company called Capitalize.
Capitalize is the only company I know that literally does all of the paperwork to rollover a 401k on your behalf! They will take care of everything you need to do, send in your paperwork, manage moving the funds, and make sure it’s rolling over into the correct account type.
Best of all, it’s FREE.
They’re not paying me to say all of this, I just really like them and I would never suggest using any financial planning tool that wasn’t absolutely bomb. My friends have used them and I have used them.
If you have a 401k you need to rollover, I highly recommend using Capitalize to help you do so (full disclosure, this is an affiliate link and I appreciate if you use mine 🙂).
Wrapping up
If you’re like, oh crap, whatever happened to that 401k I had 10 years ago? Get on top of that now!
Don’t wait and become a statistic! Go move it, friend! 🙌🏽
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