The latest Bureau of Labor Statistics findings show that, as of January 2010, the average job tenure of an employee is 4.4 years.* In the current economic climate, with corporate restructures, downsizing, and outsourcing, employees are on the move more than ever. It is no wonder that so many people have 401(k) accounts in multiple locations. The number of monthly and quarterly statements alone can make a person feel overwhelmed. The result is that the assets are often unattended. In addition, having your retirement assets scattered can make proper asset allocation challenging. One of the most common requests I receive from clients is for advice on consolidating these accounts.
There are basically four options for your old 401(k) account:
You may terminate the account and take a distribution; this is not usually the best choice due to taxes and possible penalties, particularly if you are not yet 59 ½ years old.
You may leave the 401(k) where it is, if your former employer’s plan allows this.
- You may be able to roll over the assets to a 401(k) plan sponsored by your current employer, depending on your current employer’s plan.
- You may request a direct rollover to an IRA.
With the second and third options, you have the benefit of continuation of the tax-deferred treatment you had in the 401(k), but you may find that you have limited investment choices. With an IRA rollover, you have the benefit of continuing the tax deferral you enjoyed with the 401(k). In addition, if you roll over multiple 401(k) plans, you will receive one account statement, making it much easier to track performance and properly allocate your retirement savings. With a rollover IRA, you have a wide range of investment choices, which allows diversification of your overall portfolio.
If you choose to roll over your plan to an IRA with HMC Partners, the first step is to open the IRA; I can then provide you with the account number to which the funds will transfer. In order to provide a smooth transition, we will need your help to get the money transferred. Most employer plans require that requests come in from the participant (you) rather than from a third party (us). We can provide the instructions to help you determine who to call and what questions to ask. If at any point you need help, we are here to assist you. I will be happy to initiate a conference call with your plan provider to ease the transition, or you may ask Gib or John to initiate the call when you have your initial meeting to open the IRA.
The life events that trigger the rollover process – career changes, retirement, or job loss – are enough to make you feel “scattered.” We can help make the transition as effortless as possible, so you can focus on the new path your life has taken.
*BLS News Release USDL-10-1278 dated 9/14/2010
There are risks and limitations of an indirect 401k rollover. Employers withhold 20% of the rollover amount for prepayment of federal income taxes. To avoid possible taxes and penalties, the entire distribution, including the 20% withheld, must be rolled over into the IRA within 60 days.