1 00:00:00,541 --> 00:00:02,947 Speaker 1: Welcome back to Better Financial Health in 15 2 00:00:02,987 --> 00:00:05,192 Minutes or Less and I'm Stacey Hyde. 3 00:00:05,192 --> 00:00:10,369 So today we're going to talk about what to do with an old 4 00:00:10,771 --> 00:00:13,906 employer retirement plan, whether it be a 401k plan, a 5 00:00:13,926 --> 00:00:14,788 403b. 6 00:00:14,788 --> 00:00:20,030 And if you've ever switched jobs and, let's be honest, who 7 00:00:20,091 --> 00:00:24,193 hasn't you may have an old retirement plan sitting out 8 00:00:24,254 --> 00:00:27,044 there and you may be wondering what to do with it. 9 00:00:27,044 --> 00:00:34,302 So here's a quick stat that might surprise you Over 25 10 00:00:34,503 --> 00:00:39,777 million 401k accounts worth over 1.3 trillion that's trillion 11 00:00:39,798 --> 00:00:42,945 with a T are sitting, forgotten or unmanaged. 12 00:00:42,945 --> 00:00:46,761 According to a firm called Capitalize, that's like leaving 13 00:00:46,801 --> 00:00:49,188 your paycheck behind when you leave the building. 14 00:00:49,188 --> 00:00:52,406 So that could be a good thing. 15 00:00:52,406 --> 00:00:54,284 It could be a bad thing. 16 00:00:54,284 --> 00:00:57,387 So let's talk about your four main options. 17 00:00:57,387 --> 00:00:59,844 You can leave it where it is. 18 00:00:59,844 --> 00:01:03,546 Generally speaking, it depends on the plan, but if you have 19 00:01:03,587 --> 00:01:07,805 more than $7,000 in the plan, you absolutely can leave it 20 00:01:07,846 --> 00:01:11,709 where it is, and if you work for a very large employer, chances 21 00:01:11,850 --> 00:01:15,804 are it's very low cost and may have a pretty good investment 22 00:01:15,843 --> 00:01:16,004 menu. 23 00:01:16,004 --> 00:01:21,286 The bad news is is you're more likely to forget about it and 24 00:01:21,346 --> 00:01:23,289 forget to look at it periodically. 25 00:01:23,289 --> 00:01:29,424 The second option and I think this is a good option for a lot 26 00:01:29,465 --> 00:01:33,894 of folks is you can roll it into your current employer's plan. 27 00:01:33,894 --> 00:01:35,903 There's some advantages there. 28 00:01:35,903 --> 00:01:39,052 You focus on that one because you've got money going into 29 00:01:39,091 --> 00:01:40,662 there out of your current paycheck. 30 00:01:40,662 --> 00:01:44,510 It keeps all your workplace retirement money in one spot, 31 00:01:45,311 --> 00:01:48,722 but you are limited to the New Plans investment options. 32 00:01:48,722 --> 00:01:52,751 One thing that this option gives you or leaving it where it 33 00:01:52,751 --> 00:01:57,870 was is if your income is too high to make a traditional Roth 34 00:01:57,971 --> 00:02:02,844 IRA contribution, you may want to make sure that you leave your 35 00:02:02,844 --> 00:02:09,961 pre-tax money in an employer 401k, because that opens up the 36 00:02:10,361 --> 00:02:15,372 option for a backdoor Roth IRA to you and don't want to get off 37 00:02:15,372 --> 00:02:16,693 on a tangent on that. 38 00:02:16,693 --> 00:02:21,348 We have talked about that before. 39 00:02:21,348 --> 00:02:26,242 It's a way that you can make an after-tax contribution to a 40 00:02:26,282 --> 00:02:30,037 traditional IRA and then convert it to a Roth and all that you 41 00:02:30,076 --> 00:02:31,682 pay tax on is that interest. 42 00:02:31,682 --> 00:02:34,252 So that's something you may want to look at. 43 00:02:34,974 --> 00:02:39,631 Your other option that you have is you could roll the money into 44 00:02:39,631 --> 00:02:40,393 an IRA. 45 00:02:40,393 --> 00:02:46,128 So if you roll money out of an employer plan, it rolls into an 46 00:02:46,229 --> 00:02:47,693 array and that's non-taxable. 47 00:02:47,693 --> 00:02:51,182 If you had money in Roth, you actually have to roll it to a 48 00:02:53,425 --> 00:02:57,375 Roth IRA and then you roll the pre-tax employer contributions 49 00:02:57,455 --> 00:03:00,546 any money that you put in that was not Roth, goes to a 50 00:03:00,587 --> 00:03:01,750 traditional IRA. 51 00:03:01,750 --> 00:03:07,098 The downside to this is, if you want to add this Roth money 52 00:03:07,158 --> 00:03:12,953 back into a 401k down the road, you can't do that For a reason 53 00:03:13,013 --> 00:03:17,340 known only to the IRS and federal tax regulations. 54 00:03:17,340 --> 00:03:21,967 You can roll money out of a traditional IRA into a 401k plan 55 00:03:21,967 --> 00:03:27,000 , assuming the 401k accepts it, but you cannot roll Roth IRA 56 00:03:27,039 --> 00:03:29,686 money into a Roth 401k in a plan . 57 00:03:29,686 --> 00:03:33,289 So just something to keep in mind if that's something you 58 00:03:33,330 --> 00:03:35,592 want to be able to do. 59 00:03:35,592 --> 00:03:41,159 And a Roth IRA can give you more investment options, but it 60 00:03:41,180 --> 00:03:45,413 can also have higher costs than an employer plan and you may not 61 00:03:45,413 --> 00:03:47,985 be able to get the institutional level investment 62 00:03:48,086 --> 00:03:52,070 options that you can get through your 401k. 63 00:03:53,293 --> 00:03:57,859 The last option and I feel like we should have a flashing red 64 00:03:58,019 --> 00:04:02,492 warning siren going on is you can cash it out. 65 00:04:02,492 --> 00:04:08,836 The problem with that is is you're subject to regular income 66 00:04:08,836 --> 00:04:15,337 taxes plus an additional 10% penalty tax on that money. 67 00:04:15,337 --> 00:04:21,257 So what that means is, if you made $75,000 at your job last 68 00:04:21,317 --> 00:04:26,274 year but you took, you cashed out $50,000 because you thought, 69 00:04:26,274 --> 00:04:28,418 oh, that's great, I'll pay off my car. 70 00:04:28,418 --> 00:04:32,848 Well then, all of a sudden, next year, when you do your 71 00:04:32,869 --> 00:04:32,968 taxes. 72 00:04:32,968 --> 00:04:34,050 Your income is not $75,000. 73 00:04:34,050 --> 00:04:39,536 Taxes your income is not $75,000, it's $125,000. 74 00:04:39,536 --> 00:04:51,004 Plus, you're going to owe an extra $5,000 in taxes plus your 75 00:04:51,024 --> 00:04:52,127 regular income tax rate, which is likely. 76 00:04:52,127 --> 00:04:54,870 If you're a single person and you've got $125,000 in income, 77 00:04:54,891 --> 00:04:56,713 you're probably going to owe about $20,000 in taxes, but your 78 00:04:56,713 --> 00:05:00,100 withholding was based on your earnings of $75,000. 79 00:05:00,100 --> 00:05:01,627 So that can be a rude awakening . 80 00:05:01,627 --> 00:05:07,218 So those are your four options Leave it where it is, roll it to 81 00:05:07,218 --> 00:05:12,093 your new employer's plan, roll it to an IRA or cash it out. 82 00:05:12,694 --> 00:05:13,716 So how do you choose? 83 00:05:13,716 --> 00:05:19,314 Look at fees and expenses Is your old plan charging you more 84 00:05:19,413 --> 00:05:21,386 than a typical IRA or new plan? 85 00:05:21,386 --> 00:05:24,512 If you worked for a really small employer, that may be the 86 00:05:24,552 --> 00:05:24,913 case. 87 00:05:24,913 --> 00:05:30,627 Investment choices Do you have a good broad range of investment 88 00:05:30,627 --> 00:05:31,168 options? 89 00:05:31,168 --> 00:05:35,834 Do you have a managed account option or a target date option 90 00:05:35,875 --> 00:05:40,040 that has solid performance that you can just not worry about it? 91 00:05:42,324 --> 00:05:47,312 Also, if you need access to a loan, having the money in your 92 00:05:47,432 --> 00:05:52,399 current employer's 401k plan can allow you to borrow that money. 93 00:05:52,399 --> 00:05:56,355 Rather than paying tax on it, you have to pay it back. 94 00:05:56,355 --> 00:06:00,607 Paying tax on it, you have to pay it back. 95 00:06:00,607 --> 00:06:02,550 I'm not a big fan of 401k loans , but oftentimes it can be 96 00:06:02,591 --> 00:06:04,896 cheaper than certainly cheaper than credit cards, can be 97 00:06:04,935 --> 00:06:08,007 cheaper than other types of loans that you might be able to 98 00:06:08,067 --> 00:06:12,817 get, so you do have that option if your employer offers loans on 99 00:06:12,817 --> 00:06:13,807 the 401k. 100 00:06:13,807 --> 00:06:18,817 And then consolidation having your money in fewer places can 101 00:06:18,857 --> 00:06:19,699 really help you. 102 00:06:19,699 --> 00:06:23,550 Less decisions, less things to keep track of. 103 00:06:24,632 --> 00:06:28,846 All 401ks aren't dangerous, but they can easily be neglected and 104 00:06:28,846 --> 00:06:29,728 you forget about them. 105 00:06:29,728 --> 00:06:33,896 So make a list of any 401ks you've left behind. 106 00:06:33,896 --> 00:06:39,180 And, fun fact, when you apply for Social Security plan, 107 00:06:39,221 --> 00:06:44,951 sponsors are required to report to Social Security any lost 108 00:06:47,956 --> 00:06:50,240 account owners that they've not been able to find. 109 00:06:50,240 --> 00:06:54,732 I had one client who found a 401k of like $40,000 from a 110 00:06:54,791 --> 00:06:58,918 place that he'd worked for in his 20s he was 65 because he was 111 00:06:58,918 --> 00:07:00,185 applying for Social Security. 112 00:07:00,185 --> 00:07:04,995 So people do lose track of these, and so it is a good idea 113 00:07:05,096 --> 00:07:06,418 to you know. 114 00:07:06,418 --> 00:07:09,391 Make a note, check in every year, make sure you've got 115 00:07:09,471 --> 00:07:13,987 online access and then decide what you're going to do with 116 00:07:14,026 --> 00:07:14,266 that. 117 00:07:14,266 --> 00:07:18,517 So take charge of your financial future. 118 00:07:18,517 --> 00:07:20,552 Make sure all your money's working for you. 119 00:07:20,552 --> 00:07:22,391 Thanks again for tuning in. 120 00:07:22,391 --> 00:07:25,874 This has been another episode of Better Financial Health in 15 121 00:07:25,874 --> 00:07:26,596 minutes or less.