Retirement plan decisions made easy
Drill Down: Should You Move Your Old 401k to Your New Employer?
Moving your old 401k to your new employer’s 401k plan is a reasonable thing to do, but not my first choice. Keep in mind, however, that not all employers allow plan-to-plan rollovers. The old employer has no say in the matter; if you want to move the 401k, you can. But the new employer may or may not allow rollovers. So if you’re inclined this way, check out with your new company what its rules are.
The advantage of the rollover to another 401k is that all of your money is together in one place. It’s not that the money gets lonely if it is separated from its cousins. The benefit of the rollover is that you only have one account to think about. You can make all of your asset allocation decisions inside one account. When you retire, you will be able to draw money from a single plan rather than from multiple plans. This constitutes a small convenience. If you have a busy, hectic life, I understand your desire to keep things simple.
The downside of the rollover into a new 401k plan begins with its cost. If you skipped the section on keeping your 401k in the old plan, read it now. It explains that the cost of the mutual funds in your 401k plan is likely to be higher than the best deals you can find in mutual funds for an IRA. For that reason, I like rolling over into IRAs better than anything else. But it’s not hugely wrong to roll over into a new 401k plan, just not my preferred choice.
Before rolling your old 401k plan into a new one, check out two things about the new plan. First, make certain that it has enough choices for you to allocate your assets the way you want to. If not, I can guarantee that a good IRA offers all the choices you could possibly need—and more.
Second, check the fees on the mutual funds in your new 401k. If they are running more than one percent of the fund’s assets, you can do better in an IRA. (Don’t worry if the foreign funds cost more than one percent; they are more expensive to operate.) If your funds are costing more than 1.50 percent, then definitely do not roll over into a new 401k. Instead, go into an IRA. Reread the discussion of fees in the investment chapter.
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Lesson 1: What the Heck is a 401k, and What’s So Great About It?
Lesson 2: Contributions to Your 401k
Lesson 3: Investments “Cook Book” Approach
Lesson 4: Investments: How Investments Work
Lesson 5: Loans and Hardship Withdrawals from Your 401k
» Lesson 7: Your Retirement
Lesson 9: Your 401k, Your Other Assets, and Your Life
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