If you’ve ever changed to a new job it can be hard to decide what to do with your old 401(k). Do you leave it as is? Roll it over into a new 401(k)? Roll it over to an IRA? Pull it out all together? Let’s dive in to your options.
This is something that’s relevant for pretty much anyone who worked for a company that offered a 401(k) plan. If you’re a streamer then you might eventually open your own 401(k). If you’re in the gaming industry you probably have a decent option at your company. Most young professionals working for larger companies have some sort of plan.
Decision Criteria
There’s no one answer to if you should roll over an old 401(k). Instead, you need to consider a couple of different factors. Here’s what we care about.
Price
How expensive is your old 401(k)? There are some common costs to these accounts that you need to add up.
First, what are the administrative fees that you’re paying? Those should be something you can find either in the plan documents or by contacting the plan administrator.
Second, how expensive are the funds in the account? Generally, a 401(k) has a set list of funds you can pick from. Some of them might be inexpensive but it’s also possible that you’re paying a ton of money that you don’t’ have to pay. Generally, you’d prefer your funds cost under 50 basis points (0.5%). Most Vanguard or iShares funds are like 10 basis points.
Third, is there a management fee attached to the 401(k)? Not that it’s bad to have it managed if they’re doing a good job and taking stress off of you, but it’s still an extra cost.
Investment Options
Next, what options do you have for your investments? As I mentioned it’s common to have a pre-set fund list. Generally, they’re only required to have 3 options though I’d say most 401(k)s have more. Regardless, you want to be able to have a lot of options to choose from. That can be overwhelming but it also means you can do more fine-tuning and select less expensive funds.
You should be building your investments to take in to account what you have in your 401(k). It may be that you only have a couple of good options there which means your other accounts you better control would need to pick up the slack.
Flexibility
Ask yourself what can you do with the account? Not that you would want to, but it’s good to have the option to take out loans. Or at least it’s better than not having the option.
How are you allowed to take money out of the account? Some 401(k)s only allow lump sum withdrawals, though that’s less common now.
How often can you make changes? Some 401(k) plans only let you make changes once or a couple of times per year. There’s no similar restriction if you’re in your own account.
Finally, there are some other small considerations. For instance, you can take up to $10,000 out of an IRA penalty free to pay for a first time home purchase. You don’t have the same option with a 401(k). There are a lot of small rules like this that matter.
Simplicity
How much of a pain is it to manage your money across multiple platforms and multiple accounts? While you shouldn’t make the decision just based on simplicity it’s an important concern.
Where do I put the money?
So, if it makes sense for you to move the money where do you move it? First, you need to consider whether you roll it in to a plan with a new employer or if you put it in to an IRA. I’d highly recommend against pulling the money out of your 401(k) and not putting it in to another account because of the large penalties. Do future you a favor and keep it invested in a retirement account.
First, if your new employer has a good 401(k) you can roll your old one over to it. This is only possible if the new plan administrator allows it so you’d have to ask.
If you’re interested in managing it yourself then you can roll it over to an IRA at most financial institutions. Personally, I’d recommend Vanguard. They have a long track record of low expenses and working for consumers.
If you’re interested in low costs but not managing the money yourself then a robo advisor like Betterment could be a good option. They’re very low cost and do a good job of investment management. Their online based workflows are also pretty easy to go through.
Finally, if you want someone to handle it without you having to think about it or want to talk about more than just investment management you can talk to someone like me. Look for a fee-only financial planner with their CERTIFIED FINANCIAL PLANNER™ designation. They can generally help you with both investment management as well as long-term planning.
When would I leave it in the 401(k)?
You’d leave your money in your old 401(k) if it’s low cost, has good options, and you’re not worried about your financial life being too complicated.
Additionally, you might leave it in a 401(k) if you have a TON of money in the account. There are some rules around creditor access that are better for the 401(k)… though you only see the difference once you’re talking about more than a million dollars.
Conclusion
Don’t let an old 401(k) languish if it’s in a bad plan but don’t jump to immediately roll it out of that plan either! You need to consider the cost, flexibility, investment options, and your own investing preferences when you’re making the decision. The key though is to actually weigh your pros and cons and make a decision. Don’t just move forward without thinking about it; you might pay a lot more than you should.
You don’t have to figure this out alone. This is what we do- help streamers make great money and business decisions. If that’s something that sounds interesting to you reach out me or schedule some time for a free consult. You can check out what I do here.
