Employees often make the mistake and don’t transfer their old 401k retirement account from one company to another when changing jobs. While it’s perfectly legal to do this, there are financial advantages when you move your 401k to another company. An old retirement account can be transferred to an IRA (Individual Retirement Account) or a new employer’s retirement plan.
Here are five reasons why you should consider taking the route of transferring your 401k rather than leaving your old retirement account behind.
5 Top Reasons Why to Move Your 401k from One Company to Another
#1 It’s a Simple Process
Many financial retirement accounts can be difficult to manage. It may increase your stress level, the number of secured login credentials, or the amount of retirement paperwork you have to track. Reducing the number of your retirement accounts and transferring your old 401k to your new company will make the whole process easier for you.
Also, if multiple 401k retirement accounts are located at different financial institutions, this situation will increase the level of difficulty in managing each one.
TIP: Moving and consolidating your 401k retirement accounts will reduce the number of financial institutions involved with managing your path to retirement.
#2 Transferring Your Old 401k Saves You Money
Having several retirement accounts at multiple companies will also increase the cost of managing these accounts. Next to the most common 401(k)s, there are 403(b)s, and 457 retirement accounts that frequently come with annual or quarterly account fees.
By having two 401k retirement accounts open it could double the cost of ownership for you.
TIP: Closing a single 401k retirement account may save you hundreds of dollars a year, depending on the fee structure of the specific retirement plan. If you’re unsure of the exact fee structure of your 401k retirement account, contact your retirement plan sponsor and ask for a written disclosure on what the retirement account charges you every year.
#3 Asset Allocation Could Be Easier
An investment account typically has multiple assets, and over time, the prices of the assets can drift from original targets. If the value of stocks in an account has risen significantly, for example, while the bond portion has remained flat or even declined, the portfolio will be more aggressive than you originally intended.
This is where rebalancing becomes necessary. It’s also important to consider rebalancing a portfolio if your risk tolerance changes.
A retirement plan from one employer may use a different brand of mutual funds than another employer uses, and this situation increases the complexity involved.
TIP: The fewer retirement accounts you have, the easier it will be to keep your nest egg on track and in line with proper asset class percentages.
#4 You Get Away with Additional Logins to Your Retirement Accounts
Most employees have more passwords than they want, and checking your retirement account balance will be easier with fewer logins. It’s more difficult to figure out how well or how poorly your nest egg is performing if your retirement assets are spread across multiple 401k or other types of retirement accounts.
TIP: Consolidating as many retirement accounts as possible will make your performance evaluation so much easier.
#5 It Gives You More Time to Focus On What You Enjoy the Most
The more retirement accounts you have open, the more time it will take to rebalance, monitor, and keep up with all the paperwork. Moving multiple 401(k)s, 403(b)s, and 457 retirement accounts into a single account could reduce the time required to manage them.
TIP: Maintaining too many retirement accounts can become a burden for you. Transferring and moving your retirement accounts from your old employer to your new company may let you feel that you are more on top of your financial situation.
While leaving your old job behind may be a good thing, it’s important to transfer your retirement account with you. We understand that managing multiple retirement accounts is complex. Our Hudson Companies retirement planning team is happy to help if you need assistance. Please contact us directly if you have any questions regarding moving your retirement account.
Sources to Find More Information About Moving Your Old Retirement Account