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Should You Roll Over Your 401(k) When You Change Jobs?

January 29, 2020 · 4 minute read

We’re here to help! First and foremost, SoFi Learn strives to be a beneficial resource to you as you navigate your financial journey. Read more We develop content that covers a variety of financial topics. Sometimes, that content may include information about products, features, or services that SoFi does not provide. We aim to break down complicated concepts, loop you in on the latest trends, and keep you up-to-date on the stuff you can use to help get your money right. Read less

Should You Roll Over Your 401(k) When You Change Jobs?

If you’ve signed up for your company’s 401(k) retirement savings plan and you’re contributing at least enough to get the highest possible employer match, that’s great! But there’s another financial consideration that might be still sitting on your plate: Rolling over your old 401(k) from your last job.

Maybe you’ve simply forgotten about it because the company that manages it never reminds you. Or maybe you didn’t forget about your old account, but you’ve been putting off the rollover because it sounds hard.

And you’re right. It could be. Many companies don’t make the process easy for customers to move their accounts.

But here’s the thing: By not rolling it over, you might be losing some serious cash. That’s right—losing money, so it’s easy to miss. These are a few key reasons that you should get on it, like, now.

You May Be Paying Hidden Fees

This may surprise you, but there are all sorts of fees that go into effect when you open a 401(k). Some include: recordkeeping fees, maintenance fees, fund fees, and more.

Employers often cover those fees (it’s more common at private companies than at nonprofits, according to Norris) until you leave the company. Once you’re gone, you may suddenly be paying them without even realizing it.

And remember, when you pay a fee on your 401(k), you’re not just losing the cost of the fee; you’re also losing all the compound interest that would grow along with it over time. So the sooner you roll your plan over, the more you could save.

You Could Lose Track of the Account

Take a moment to think about this from a logistical perspective.

First, it’s harder and more time-consuming to juggle multiple retirement accounts than it is to juggle one. Until you retire, you’ll be managing two (or more) websites, two usernames and passwords, two investment portfolios, and two growth rates for decades. Why not consolidate?

Second, when you’re no longer with an employer, you could miss alerts about changes that may occur with an old retirement plan.

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You Might Be Missing Out on Better Investments

401(k) accounts grow at different rates depending on which assets you invest in. If the retirement savings plan at your new company—or an individual retirement plan (IRA)—offers a better selection of stocks and bonds, the money that’s sitting in your old 401(k) could potentially grow at a faster rate if you roll it over into a new plan or into an IRA.

It’s certainly worth investigating the growth rates of each. Keep in mind that you can lose money when investing, too, so take some time to think about your personal tolerance for risk when deciding how to invest your retirement accounts.

You Have Options

While it’s certainly an option to leave your account in your former employer’s plan when you switch jobs, you have a few choices if you don’t want to do that.

•   You might choose to cash out your account. If you take this route and you’re younger than 59 ½ years old, you will owe taxes and might owe penalties depending on how you use the money.

•   Another option is to roll the account into your new employer’s retirement plan (if allowed) or into an IRA. Talk to a professional and get informed about the costs, risks and benefits of old and new options before making the decision to roll over.

Cashing Out Early

Should you choose to cash out your 401(k), there are some circumstances when the 10% early withdrawal fee is waived. This might include eligible education expenses, certain medical expenses, or expenses related to a first-time home purchase for eligible buyers, among other things. The funds will still be taxed in this case, but the early withdrawal fee would be waived.

While many would probably advise you to leave the funds in for the long haul, an early withdrawal from your 401(k) might be worth considering if you are unable to find another source for the funds you need.

Rolling Over a 401(k)

The process of rolling over a 401(k) might seem intimidating at first, especially if you’re moving onto your second job and this is the first time you’ll be rolling over a 401(k). Rest easy, though, the actual process of rolling over a 401(k) isn’t too complicated once you’ve decided where your existing funds are going to go.

If you decide to roll your funds into your new employer’s 401(k), the plan administrator will likely supply you with the details of the transfer, including your investment options, and assist you in completing the paperwork for the rollover.

It’s possible that you might have to wait until your employer’s next open enrollment period to complete the rollover, but you might consider using that time to research the plan’s investment options so you’ll be ready when the time comes.

If you choose to roll your 401(k) funds into an IRA that’s not employer sponsored, a direct rollover is the method that takes most of the guesswork out of the transfer. This means that the funds will be taken from your previous account and rolled directly into the new account.

Doing it this way should avoid your previous lender sending you a check and resulting in any unforeseen early withdrawal tax situations.

Opening a new retirement account online is pretty easy, but there are some steps to opening an IRA that might be worth considering. Once your funds are rolled over, you’ll be able to choose the investments that work for your retirement goals.

Ready to Get Started on Your New Retirement Journey?

Tracking your retirement goals using SoFi’s retirement calculator is a good way to see where you stand. You’ll be able to estimate how much you might need in today’s dollars to retire at your desired age. You can adjust your current earnings and savings to see how your current strategies are lining up with your goals.

If you need to make adjustments, you can make the ones that make sense for you. You might want to consider scheduling a complimentary personal consultation with a SoFi licensed financial advisor who can answer your questions.

Not sure which rollover strategy is right for you? SoFi Invest® is all about empowering you and your financial future, and we’re here to help.


External Websites: 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.
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The information provided is not meant to provide investment or financial advice. Investment decisions should be based on an individual’s specific financial needs, goals and risk profile. SoFi can’t guarantee future financial performance. Advisory services offered through SoFi Wealth, LLC. SoFi Securities, LLC, member FINRA / SIPC . The umbrella term “SoFi Invest” refers to the three investment and trading platforms operated by Social Finance, Inc. and its affiliates (described below). Individual customer accounts may be subject to the terms applicable to one or more of the platforms below.

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