Over 88 million Americans participate in a 401(k) plan, with an average $96,288 balance, making 401(k)s a primary income source for retirement. There’s no doubt that these accounts are an incredible asset to help you reach your retirement savings goals. Employer-sponsored savings plans offer a tax-advantaged way for you to save, often with matching contributions from the employer and multiple investment options. But 401(k)s can become problematic when you change employers, which many Americans do on a regular basis. The Bureau of Labor Statistics reports that it’s not rare for Americans to change jobs more than eleven times in their career.
If the majority of your previous employers offered a 401(k), how do you keep track of your accounts when you move on to a new job? It’s can be a challenge to manage all of these accounts and stay true to a coherent investment strategy for your financial future. It’s not an easy task to track growth, manage fees, and stay diversified if your money is in multiple places. More than one-third of Americans have three or more retirement accounts. Is this you? Do you need to consolidate your 401(k)s into one account?
Why Should You Rollover Your Accounts?
When considering what to do with old 401(k) accounts, many people choose to roll them over into IRAs, or Individual Retirement Accounts. There are many advantages to having your money in an IRA as opposed to a 401(k) plan. You have much more flexibility with the IRA, and you can shop around for low fees and diverse investment options. Instead of being tied to the 20 or so options your company offers, you can invest your IRA in just about anything except life insurance or collectibles. You can even invest your IRA in real estate that you manage through a self-directed IRA. IRAs usually offer more options as to who you can name as a beneficiary or contingent beneficiary of the account.
With all of your money in one place, it may be easier to see the big picture of where you stand financially and manage your asset mix. The IRS even allows you to withdraw earnings penalty-free from your IRA before you turn 59 ½, as long as your account has been open for five years and the money is used for qualified expenses, such as buying your first home, higher education, or medical expenses. Also, unlike your 401(k), your IRA is not tied to a particular employer, therefore changing jobs has no effect on it.
How To Find 401(k)s From Previous Employers
If you’ve lost track of your previous 401(k) accounts, you have some options for hunting them down. The simplest step is to contact the human resources department of your old employer. Not only will they have records of your account, but they will also be able to provide you with the necessary paperwork to make any account changes, such as rolling the money into an IRA.
If you’ve kept any old documents, you can refer to old 401(k) statements that will give you contact information and details on your account standing. If you are still unable to obtain account information from previous jobs, you might find what you’re looking for through the National Registry of Unclaimed Retirement Benefits. This database lets you search for any retirement plans registered under your name. Not every employer is listed, but you may be able to find some of your 401(k) accounts through this resource.
How to Avoid Taxes When Rolling Over Your Money
An important factor to consider when taking steps to roll your 401(k) balances into an IRA is that of taxes. Funds contributed to a 401(k) are taken out of your paycheck pre-tax, so you want to ensure you are rolling the money over in a way that will avoid a taxable event. There are multiple methods of transferring the money, and some of these can cause a headache if not handled properly.
Work with your advisor to go over the details and achieve peace of mind that your 401(k) balances are being taken care of and will not incur tax consequences. A qualified professional can help you understand your options and how they relate to your particular situation, as well as walk you through the process. If you have old 401(k) accounts, please contact us at 323.254.3072 and we can talk through your rollover options and optimize your retirement savings.
About Mason & Associates, Inc.
Mason & Associates, Inc. was founded in 1989, specializing in Life Planning for individuals, families and small businesses. Life Planning places a person’s core life values at the heart of the advice process and focuses on the human aspects of financial planning.
As a client, your personal story is key to our planning process. That is why we strive to build a close relationship that will encompass every aspect of your life. Together with our team of professionals, we guide you through the process of identifying what is important to you, your goals, your dreams. We then put into place a financial road map to set you on your way towards achieving your objectives.
Our responsibility does not end there. As you encounter bumps in the road, changes in goals or any other roadblocks, we are there to offer advice and guidance. We are there to celebrate your successes and cope with your challenges. We work alongside your other professionals such as your attorney and your CPA to be sure all of your legal and financial needs are aligned.