Retirement

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

Published on December 15, 2017

By Jane Bianchi

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’s probably 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. And guess why? “They’re incentivized to convince you to leave your funds put, because they’re often receiving some type of compensation on your account balance,” says Alison Norris, CFP, a Financial Planner at SoFi.

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. “They really don’t want to make the process easy for you,” says Norris. “It’s pretty onerous and unpleasant, unfortunately, across the board.” There’s generally a lot of paperwork involved, and you usually need to get on the phone at least once, if not several times. Ain’t nobody got time for that.

But here’s the thing: By not rolling it over, you might be losing some serious cash. That’s right—losing money—and the way that you lose it is sneaky, 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). “There are often recordkeeping fees, maintenance fees, fund fees for what you’re actually invested in, and sometimes others,” says Norris.

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.

“Employers no longer have that incentive to pay for your costs, and it’s totally legal. But you may not see these fees listed clearly on your statements even if you have access to them,” says Norris. “It’s almost like death by 1,000 cuts. People don’t realize all the small slivers they’re paying for.”

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

“There are stories of people who switch jobs, which is very common, and over years leave their 401(k) with a former employer. And then that employer changes their 401(k) plan administrator—maybe they go from Fidelity to Prudential—but you don’t get notified so you don’t know where your dollars are anymore,” says Norris.

You Might Be Missing Out on Better Investments

401(k) plans 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. So 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.

The Bottom Line

You have a few choices for how to optimize your retirement accounts when you have a 401(k) from a previous employer. Good options include rolling over the account into a 401(k) with your current employer (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.

Whatever you do, don’t cash out the money that was in your old 401(k) or else you’ll be slammed with federal and state income taxes, as well as a 10% early withdrawal penalty if you’re younger than 59.5 years old. In short, you may ruin your chance of retiring at a reasonable age. Be sure to talk to your tax advisor when it comes to this decision.

It’s important to stay on top of your retirement. One way to do so is to see if you are on track for your goals. Use SoFi’s retirement calculator to see where you stand.

“While it’s not the most fun to roll over a 401(k), you only have to do it once for every employer. It’s almost like ripping off a BAND-AID,” says Norris. “It’s very gratifying to make a couple of annoying phone calls and know that you’ve done wonders to ensure that your retirement is more in line with how you envision it.”

Not sure which rollover strategy is right for you? SoFi Wealth is all about empowering you and your financial future, and we’re here to help. Schedule a free personal consultation with one of our licensed financial advisors who can answer your questions.

Schedule a complimentary appointment with a SoFi Wealth advisor

SoFi Wealth, LLC does not render tax or legal advice. Individual circumstances are unique and we recommend that you consult with a qualified tax advisor for your specific needs.

The SoFi Wealth platform is operated and maintained by SoFi Wealth LLC, an SEC Registered Investment Advisor. Brokerage services are provided to clients of SoFi Wealth LLC by SoFi Securities LLC, an affiliated broker-dealer registered with the Securities and Exchange Commission and a member of FINRA / SIPC. Investments are not FDIC Insured, have No Guarantee and May Lose Value. Investing in securities involves risks, and there is always the potential of losing money when you invest in securities. Clearing and custody of all securities are provided by APEX Clearing Corporation.
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