For many American workers, signing up for an employer-sponsored 401k plan is pretty much a no-brainer.
It’s hard to turn down the tax savings and the employer match. If you enroll right away, you might not even miss the money that’s coming out of your paycheck every month. And at most companies, signing up is automatic—check a few boxes and you’re done.
But if you leave that workplace and want to take your 401k savings with you? Well, that isn’t always so easy. You’ll have decisions to make regarding where that money could go—perhaps to an IRA or a new employer’s 401k.
Of course, your old 401k plan provider isn’t going to advise you to take the balance and roll it over into an IRA. They’re making money off your money. It’s up to you to decide the pros and cons of sticking with the old plan vs. moving to a new account that has perks of its own.
Every saver’s needs are different, and a rollover isn’t right for everyone. But here are five things 401k providers don’t want you to think about as you consider rolling your money into a new account.
Fees Matter to Your Bottom Line
If you automatically signed up for the employer-sponsored 401k when you started your job, you may not be aware of all the updates within the plan—or that you could do better by making a change. Despite ongoing efforts by federal regulators and others to make retirement plans more transparent, most 401k participants don’t seem to know or care how much they’re paying.
(Perhaps because they don’t feel they have much control over those investments or a connection to the people who do. Or maybe they simply trust that their employers are looking out for their best interests and have negotiated the lowest fees possible on their behalf.)
Service and Selection are Important
Some 401ks have limited investment options. Some lack good customer support. Depending on who’s in charge of managing your account, if you’ve moved on to another employer, it may be especially difficult to get either.
Diversification is important in a 401k, and that means putting together a portfolio with more than just mutual funds. And when an investment or strategy isn’t performing as expected, or if your asset allocation needs to be rebalanced, you need to be sure someone is keeping an eye out for you.
There’s a Chance You’ll Lose Track of Your Old Account
Okay, you might not forget you have money … somewhere. But because most accounts are now managed online, you probably don’t receive paper statements. Unless you check your balance regularly, you might not remember your password, account number or even the name of that old 401k company.
You could neglect to change your name or the beneficiary on your account if you get married or remarried. And if you forget to update your email address through the years, you likely won’t receive notices about changes. Will you eventually figure it out? Probably. But you risk leaving a virtual trail of accounts behind you as you move from one employer to the next.
An IRA May Offer More Flexibility Than You Think
If your goal is to stash away money for retirement, you’ll want convenient withdrawal options when you get there. Some 401(k) plans limit participants to quarterly or annual withdrawals in retirement—which doesn’t play well with most income plans.
With an IRA, you can take distributions whenever you want after age 59½—including setting up a monthly withdrawal plan. (Just as with a 401k, you’ll be required to take minimum distributions from a traditional IRA after age 70½.)
Doing a Rollover Doesn’t Have to Be Difficult
Start by checking out accounts to learn which option best suits your needs. You can do this online, and you’ll probably be able to set up your account online as well. (Or use the phone, if that’s more comfortable or if you have questions.) Be sure you understand everything that’s required to open an account, and think about how you’d like to see your money invested, so you can get it working for you right away.
Next, contact the financial company that’s managing your 401k. Ask about their rollover requirements and make sure you’ve met them. (There might be some forms for you to fill out. You may be able to do that work online, or they may accept a request from the company managing your new account.) Make sure you verify your account number and your current account balance. Have the 401k provider send a check in that amount to your new IRA.
Once everyone’s questions have been answered and you’ve completed all the necessary forms, the money will be sent directly to the financial institution that’s home to your new IRA with instructions to roll the money into your account. This is called, creatively, a “direct rollover,” and it’s the safest option for getting your money from Point A to Point B. The other option, an “indirect rollover,” can cost you time and money.
Confirm that your money is in your new account and that your goals, timeline and tolerance for risk are made clear. If you aren’t sure what you want or where you stand, work with an advisor who can help you with the basics.
If your new employer offers a 401(k) with some level of matching contribution, you may want to contribute enough from each paycheck to take advantage of that money. Otherwise, you may wish to stick strictly to saving in your new account to make the most of the investment options and personal service.
When you leave a job—whether it’s to retire or to move on to a better opportunity—there’s a lot to wrap your arms around. It’s easy to let an old 401k get lost in the shuffle. But doing a rollover doesn’t have to be complicated or time-consuming.
An IRA Might Be A Good Choice
Opening a SoFi Invest account is simple; you can do it online or on the phone. SoFi lets you invest multiple ways and without fees. You can get started with active investing if you want to do it yourself, or automated investing for a hands-off role.
SoFi advisors are credentialed financial planners who are paid a salary, not a commission or fees, so they’re looking out for your best interests. Plus, there are no SoFi management fees. SoFi can help you take a look at your current 401ks and tell you what fees you are being charged. Then, the advisors can help you put a game plan in place for your investments.
SoFi offers both traditional and Roth IRA accounts online with a wide variety of portfolio options, so you can find a mix that works toward your objectives. Advisors choose from a broad mix of exchange-traded funds (ETFs), and because these ETFs follow more than 20 indexes, you’ll have a diverse asset allocation.
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SoFi can’t guarantee future financial performance.
This information isn’t financial advice. Investment decisions should be based on specific financial needs, goals and risk appetite.
Diversification and asset allocation can help reduce some investment risk. They cannot guarantee profit or fully protect against loss in a down market.
The information and analysis provided through hyperlinks to third party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
Advisory services offered through SoFi Wealth, LLC, a registered investment advisor.
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