Should You Merge Your Old 401 (K) With Your New Plan?
If you have multiple 401 (k) from old jobs, should you combine them into your current 401 (k) plan? Combining these accounts has certain benefits, but you need to make sure you combine for a good plan while avoiding excessive fees and limited investment options.
Why unite?
One of the biggest benefits of a 401 (k) plan is employer matching, where every dollar you save for the plan is covered by your employer in whole or in part. Basically, it’s free money. However, after you quit your job, you will lose a suitable job with an employer and will not be able to contribute to your investment. Without active contributions, multiple 401 (k) accounts tend to be easily forgotten and left untouched while incurring high administration fees. In addition, rebalancing your investment portfolio – an exercise that financial advisors recommend doing every year – becomes a challenge due to the multiple overlapping caches of retirement money.
Of course, you can also invest these funds in a separate IRA, which has its own advantages and disadvantages , but usually a 401 (k) with employer approval is the best option for long-term investment. However, not all 401 (k) plans are suitable for consolidation or offer suitable employer or investment options, so you should carefully review your options with a financial advisor before proceeding.
How to make a decision
Before you decide to merge older 401 (k) plans with your current plan, consider the following:
- Does your current employer plan offer more investment options?
- Are your current fees lower than previous plans?
- Are you better off with a 401 (k) plan instead of an IRA ?
- Does your employer pay contributions?
If the answer to these questions is yes, you probably want to move your 401 (k) into your current plan. The transition to a single 401 (k) should be smooth and free of taxes and penalties.
Consolidated 401 (k) benefits
Besides employer selection, other benefits of a consolidated 401 (k) include:
Benefits for increasing account balance
Some lenders offer benefits if your balance exceeds the minimum threshold. By pooling your investment, you can qualify for a refund, commission waiver, or premium customer service. A larger balance also allows you to take out a larger loan or withdraw funds in the event of an emergency.
Easier to manage
You can track your investments in one place and avoid a lot of account numbers, usernames and passwords that you need to remember (and probably lose). Tracking a single 401 (k) investment also makes filing your tax return easier.
Reduced commissions
Each of your old retirement accounts requires a custodian to report contributions and withdrawals to the IRS, and most custodians charge an annual fee. The more accounts you have, the more you pay.