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Speaker 1: Welcome back to
Better Financial Health in 15

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Minutes or Less and I'm Stacey
Hyde.

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So today we're going to talk
about what to do with an old

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employer retirement plan,
whether it be a 401k plan, a

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403b.

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And if you've ever switched
jobs and, let's be honest, who

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hasn't you may have an old
retirement plan sitting out

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there and you may be wondering
what to do with it.

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So here's a quick stat that
might surprise you Over 25

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million 401k accounts worth over
1.3 trillion that's trillion

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with a T are sitting, forgotten
or unmanaged.

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According to a firm called
Capitalize, that's like leaving

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your paycheck behind when you
leave the building.

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So that could be a good thing.

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It could be a bad thing.

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So let's talk about your four
main options.

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You can leave it where it is.

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Generally speaking, it depends
on the plan, but if you have

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more than $7,000 in the plan,
you absolutely can leave it

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where it is, and if you work for
a very large employer, chances

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are it's very low cost and may
have a pretty good investment

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menu.

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The bad news is is you're more
likely to forget about it and

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forget to look at it
periodically.

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The second option and I think
this is a good option for a lot

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of folks is you can roll it into
your current employer's plan.

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There's some advantages there.

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You focus on that one because
you've got money going into

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there out of your current
paycheck.

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It keeps all your workplace
retirement money in one spot,

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but you are limited to the New
Plans investment options.

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One thing that this option
gives you or leaving it where it

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was is if your income is too
high to make a traditional Roth

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IRA contribution, you may want
to make sure that you leave your

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pre-tax money in an employer
401k, because that opens up the

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option for a backdoor Roth IRA
to you and don't want to get off

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on a tangent on that.

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We have talked about that
before.

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It's a way that you can make an
after-tax contribution to a

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traditional IRA and then convert
it to a Roth and all that you

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pay tax on is that interest.

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So that's something you may
want to look at.

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Your other option that you have
is you could roll the money into

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an IRA.

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So if you roll money out of an
employer plan, it rolls into an

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array and that's non-taxable.

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If you had money in Roth, you
actually have to roll it to a

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Roth IRA and then you roll the
pre-tax employer contributions

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any money that you put in that
was not Roth, goes to a

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traditional IRA.

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The downside to this is, if you
want to add this Roth money

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back into a 401k down the road,
you can't do that For a reason

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known only to the IRS and
federal tax regulations.

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You can roll money out of a
traditional IRA into a 401k plan

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, assuming the 401k accepts it,
but you cannot roll Roth IRA

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money into a Roth 401k in a plan
.

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So just something to keep in
mind if that's something you

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want to be able to do.

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And a Roth IRA can give you
more investment options, but it

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can also have higher costs than
an employer plan and you may not

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be able to get the
institutional level investment

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options that you can get through
your 401k.

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The last option and I feel like
we should have a flashing red

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warning siren going on is you
can cash it out.

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The problem with that is is
you're subject to regular income

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taxes plus an additional 10%
penalty tax on that money.

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So what that means is, if you
made $75,000 at your job last

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year but you took, you cashed
out $50,000 because you thought,

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oh, that's great, I'll pay off
my car.

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Well then, all of a sudden,
next year, when you do your

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taxes.

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Your income is not $75,000.

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Taxes your income is not
$75,000, it's $125,000.

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Plus, you're going to owe an
extra $5,000 in taxes plus your

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regular income tax rate, which
is likely.

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If you're a single person and
you've got $125,000 in income,

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you're probably going to owe
about $20,000 in taxes, but your

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withholding was based on your
earnings of $75,000.

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So that can be a rude awakening
.

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So those are your four options
Leave it where it is, roll it to

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your new employer's plan, roll
it to an IRA or cash it out.

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So how do you choose?

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Look at fees and expenses Is
your old plan charging you more

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than a typical IRA or new plan?

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If you worked for a really
small employer, that may be the

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case.

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Investment choices Do you have
a good broad range of investment

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options?

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Do you have a managed account
option or a target date option

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that has solid performance that
you can just not worry about it?

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Also, if you need access to a
loan, having the money in your

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current employer's 401k plan can
allow you to borrow that money.

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Rather than paying tax on it,
you have to pay it back.

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Paying tax on it, you have to
pay it back.

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I'm not a big fan of 401k loans
, but oftentimes it can be

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cheaper than certainly cheaper
than credit cards, can be

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cheaper than other types of
loans that you might be able to

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get, so you do have that option
if your employer offers loans on

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the 401k.

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And then consolidation having
your money in fewer places can

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really help you.

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Less decisions, less things to
keep track of.

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All 401ks aren't dangerous, but
they can easily be neglected and

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you forget about them.

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So make a list of any 401ks
you've left behind.

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And, fun fact, when you apply
for Social Security plan,

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sponsors are required to report
to Social Security any lost

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account owners that they've not
been able to find.

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I had one client who found a
401k of like $40,000 from a

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place that he'd worked for in
his 20s he was 65 because he was

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applying for Social Security.

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So people do lose track of
these, and so it is a good idea

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to you know.

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Make a note, check in every
year, make sure you've got

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online access and then decide
what you're going to do with

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that.

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So take charge of your
financial future.

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Make sure all your money's
working for you.

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Thanks again for tuning in.

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This has been another episode
of Better Financial Health in 15

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minutes or less.