How to Tackle the To-Do of Rolling Over Old 401ks

We get it. 401ks are a drag to deal with. 🙂

I’m a fan of making lists. Not only do I have a weekly task list that lives in my old school bullet journal, but at any given moment I always have at least a handful of more niche lists in my virtual notebook that reflect the various projects and goals I have going on in my life. It makes me feel centered and in control; if a task is on the list, then it is already halfway to being done, right?

Well, that’s what I try to tell myself. But the truth is, there are sometimes tasks that end up on my list for an absurd amount of time. Usually these are the things that I think will be especially hard or annoying, but with the added bonus of not having a firm deadline to complete them. So they keep getting bumped to the bottom of the list, week after week (after week).

One of the worst offenders by far was the task of dealing with my previous employer’s 401k after I started with blooom. It went on the list right away – I knew it was something I needed to look at – but then it consistently got pushed off for more ‘pressing’ concerns. It stayed on the list for a year and a half before I finally bit the bullet and called my old record keeper (Fidelity) to start the process of rolling over the account. But once I picked up the phone, I had it checked off the list in less than ten minutes! Over a year of procrastination just to avoid a ten minute phone call? Yeah, it was a little embarrassing.

You’re not alone.

But I’m not alone: ING DIRECT USA found in a survey that more than half of American adults had left a retirement account at a previous employer, and that 30% did so just because they were unsure about the rollover process. We assume that rolling over a 401k will be a long complex process, and we don’t feel equipped with the knowledge to make the right decision. But then inaction becomes the decision, and that can prove costly.

Simply put: If you’re no longer receiving the employer match, you may want to roll over.

401k accounts can be very expensive, so once you’re no longer receiving the other benefits inherent in these types of accounts – such as the match from your employer – it often makes more sense to roll them into a less expensive IRA (Individual Retirement Account), or into your new employer’s 401k if you have access to one. A rollover simply means moving the money from your old account into a new one in such a way that isn’t considered a withdrawal and is therefore not a ‘taxable event’. Straight up withdrawing the money from an old account is typically the worst of the options you have, as not only will the money be taxed, but it could also incur a 10% penalty.

So what should you do with your old retirement account then? Yes, it may only be a ten minute phone call, but you still have to know what to say when you call, right? Since we’re talking lists, here’s a handy checklist to help you get started:

Old 401k To-Do List

• Check out the fees you’re being charged in your old retirement account. It might take a phone call or digging through plan documents to find, but having that information will help you better compare your options.
• If you don’t have access to a new 401k, paying more than 0.1% on your old account is generally a good indication that rolling into an IRA may be a good choice for you.
• If you do have access to a new 401k, first check to see if it allows rollovers. Most plans will, but some don’t.
• If your new 401k does allow rollovers, compare the fees between the two, as well as the funds available. When it comes to the fund list, you’re looking for cheap index funds that cover a variety of asset classes.
• Consider convenience: fees and fund options are important, but there’s also something to be said for the convenience of having a single retirement account. It means less accounts to manage now, but also becomes even more appealing in retirement when RMD (Required Minimum Distribution) starts to come into play and will affect each account individually.
• If you do choose to rollover the account, make sure to request a ‘Direct Rollover’. This will ensure that the account is transferred without being considered a withdrawal.

Still need help, or not sure where to find some of the information listed above? Connect your most recent 401k to blooom, become a member, and we can help straighten out all the confusion.

At the very least, add “fixing your 401k” to your list: I promise it’ll be easier to cross off than you think!

The information is provided for discussion purposes only and should not be considered as advice for your investments. Blooom does not provide tax advice. Consult a tax expert for tax-specific questions.