What To Do With an Old 401k

According to estimates from Capitalize - about 1.65trillion in assets is in forgotten 401k accounts. That's insane! About 29 million accounts. 

So what should you do with your old 401k? In this episode, I give you the 4 options that you have when it comes to old employer plans. 

Let's not have you be one of those 29 million people. Retirement savings are important!! 

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Transcript

00:00 Welcome to the Confident Dollar Podcast. I am excited that you guys are joining here today for another episode to continue to teach you about your finances and build confidence when it comes to your money and making financial decisions.

00:17 So that is the goal of this podcast to continue to build confidence with you and your finances. I'm in an age where there's so much information and there's so much to take in all the time.

00:29 I want to help decipher that for you here and just smoke it. Small bite-sized episodes that you can understand, no jargon, no financial speak so you have no clue what I'm talking about, no in-your-terms understand and start learning about money and investing and debt payoff and all of those things so

00:45 you can manage your money better. So that is the goal of the Confident Dollar Podcast. I'm your host, my name is Lauren and I have been in the financial services industry for 13 years so pretty crazy, it's gone by pretty quickly.

01:00 I've been an advisor for 7 of those years and I. Have started, I'm also an entrepreneur, I started my own financial planning firm 4 and a half years ago, Sela Portfolios and Planning, located in Orange County, California but serving clients across the nation and so I have had a good amount of these conversations

01:19 around money. Around all the things that we talk about on this podcast so that is the experience that I bring here to the table to be able to get these out to more than just my clients so this is I want to treat you as if you were my client if I'm teaching you Thank you. When you've walked in my doors

01:37 how to manage your money I wanted to do that on a mass scale so this obviously made sense in starting this podcast and getting these out to people to help continue to teach people how to manage their money and build confidence and that so thank you for joining today.

01:52 Today we are talking about 401ks old 401ks what you should be doing with your old 401ks and what your options are when you change employers so it's crazy to think that I saw statistics put out by capitalized that there are 1.65 trillion 1.65 trillion dollars in old 401ks left behind that You is so much

02:25 so I think it boiled down to like 29 million 401ks are forgotten so I don't know specifically if they just mean like they're actually forgotten they haven't had anybody reach out to them in a certain amount of time or if it's just people that have moved on and left those assets behind I'm a little bit

02:40 unclear but regardless that is a ton of assets and that is a lot of people 29 million people that have left a retirement account somewhere that they did not move with them and they potentially don't even know where it is or that forgot that they even had it so things are too expensive to go around like

03:01 that that's crazy to me you cannot be having just so much in retirement savings that you just like forget that things are you know worth your previous employer but Thanks watching. Well next week. We'll see you Thanks watching! The reality is is that we change jobs pretty often and things get busy when

03:18 you change jobs and you think you're gonna deal with that later and then you never do and so you know all of a sudden you're 5, 10, 15 years down the line and you have totally forgot to do anything with that old 401k.

03:29 So take this as your sign if you are listening to this today that okay now is the time for me to actually sit down when I get home tonight and deal with what I'm going to do with that old 401k that my last two or three We'll next week. We'll next week. We'll see We'll see We'll see Umm job.

03:45 So that ends up being what's happened. People change jobs and they just leave this trail of 401k's behind them at every single job and they don't do anything with them.

03:55 So what are your options? What are you even able to do with your old We'll be right 401k's. We're gonna talk about four options that you have with old 401k or 403b or just retirement employer plans, retirement plans.

04:09 That's what we're talking about today is employer retirement plans. So the benefits that you get through your employer, the amount that's pulled out of your paycheck and maybe you've had match from your employer during those periods of time too.

04:22 What do you do with those old accounts when you change jobs? So option number one probably why there are 1.65 trillion dollars.

04:32 Really you know an asset's left behind is your first option is it can stay. It can stay in the previous 401k.

04:39 So as long as your balance is over 5,000 dollars they actually legally cannot do anything about it. It can stay and your that account can stay open.

04:48 At that previous employer. So if it's under 5,000 they can technically kick you out and cash that out to you make you take it out.

04:56 But if it's over that they cannot do anything with it so we can stay there. So I would say most people make this choice out of maybe laziness or on not knowing what to do.

05:08 This isn't really like the first choice to actually do. It's just what ends up happening to most people because they just never deal with it.

05:15 Or they just don't know quite what to do so they just you know freeze and it stays there. So that is choice number one as it can stay there.

05:23 Now this does not seem very wise to me umm because let's say you know you you've changed jobs you have your 401k it's got $25,000 in it and you're doing pretty good you don't really know to do with it so you keep it there but then 401ks they can change uhh you know companies can change who manages 401ks

05:43 anytime they want and so you know you've been out of the job 10 years you're doing something else you're saving new retirement savings you didn't move anything Thank you so but you missed the memo you missed the mailing or the emails that that's changed umm 401k management companies and so it's moved

06:03 on somewhere else that you now no longer know how to log into or get access to and you don't really know anybody that works at that company anymore and it's just a whole thing of having to track it down so you in my opinion are risking a lot by leaving it behind umm at previous employers because you 

06:19 just don't know what's going to change and if you're going to listen we keep track of enough login anyways so to keep track of an old login and an old portal that's not gonna be a great thing so I don't think this is the best option on the options that you have umm but it is one of them so I have to 

06:40 You let you know that is an option option number two is you can cash it out now if you do that and you are not over fifty nine and a half you're going to pay ten percent in penalties you're also going to pay you federal income tax on that and state income tax if you live in a place that has state income

07:00 tax so also not a great option because if you you don't want to have to pay penalties on something if you're you know if you don't need to Thank you. and most people again do this I would say out of by accident because maybe they think they're gonna move it they take the check they cash it then all of

07:21 a sudden they've actually cash it out so some people might do that for the really smaller balances but again doesn't really make any sense or not not sure why you would ever do this but that is an option that you have you can technically cash it out again you'd have to worry about the penalties if you're

07:37 not 59 and a half and that is a 10% penalty okay so we kind of got the not so great options off the table so what are your two main options for actually moving it and keeping it invested you have two of them first option is to roll it over to your new 401k plan so once you are eligible Thank you.

08:00 Umm in your new job to start your 401k you can go back to your old 401k and you can ask them to process a rollover into your new 401k so that is an option now this will get everything combined for you it keeps it all together umm so you everything is in 401k you know or your employer plans so if it's

08:23 a 403b just so you know I'm gonna keep referring to it as 401k but it's any type of employer plan from one employer plan to another so you can do that you can do you can get it to your new 401k it would then be invested in the investment options that you have umm for that new plan it would be now combined

08:42 and all together and you would have access to that it's now with you with your most current account umm so that is another option now your last option is to roll it over into an IRA individual retirement account and IRA so you can umm if you don't want to keep it connected to your employer plans you 

09:09 do not have to you can take the old 401ks let's say you have multiple of them at this point because you've changed jobs a few times you can take them and you can combine all of them into Thank you. In IRA.

09:21 Now that is only as long as every contribution that you did and those were traditional contributions and it could go into a traditional IRA if you have any Roth contributions within for old 401ks you would have to open up a Roth.

09:36 Bye! The Roth to move that into the Roth IRA instead. So the contribution type has to stay together but that is what you can do.

09:45 There are some pros to this option. This is now it is in your name. It is at a place in which you want it to be held.

09:53 So you get to choose where you're holding that IRA. Unlike your new employer plan, you don't have that choice, right?

09:59 You get offered one employer plan. Umm where you're for your own IRA you can choose where you want to hold it.

10:05 You can choose if you would like to work with a professional. If you don't want to work with a professional and you want to do it yourself.

10:09 So umm and it gets in, it's in your name. It is under your control. You now, wherever you're holding it, would choose your investment options.

10:18 So oftentimes IRAs have more investment, investment options than 401Ks or employer plans. You know, you know, you have more Because employer plans are just a specific plan that only offers specific investments within that plan.

10:31 And since you can choose where you want to hold your IRA, you could have more options as far as how type of investments within that account.

10:40 Then you'd also have more options over fees, right? So if you're choosing where to hold it, you can also assess fees.

10:45 Your employer plan is going to have certain fees attached to it. There's nothing you can do about that. That's how they've set it up.

10:51 Where if you have your own IRA, you can, you know, be mindful of fees. If Thanks watching! That is something that is important to you again doing it yourself choosing ETFs over mutual funds or whether or not you hire professional our ways you could save on fees versus within an employer plan.

11:09 Now, this might be a confusing and so just gonna put this in there because whether or not you roll it over to a 401k or an IRA also has, if you plan to do any backdoor Roth conversions Thanks watching! It's a lot simpler to keep these assets in a 401k in the employer plan than rather than have it in 

11:34 an IRA. So that is something, if that is something on your list that you may do then you might want to consult a financial professional first to see if it makes the most sense to roll it over into a 401k or an IRA.

11:49 So if that part's confusing, that part may need a financial professional, but if you are aware of a backdoor Roth conversion basically you do not want to have assets in IRA since that would be part of the conversion equation and, you know, the tax as far as that, anything that's in the 401k or employer

12:06 plan doesn't have to be part of that conversion equation. So that's just kind of a little bit side note, but again, it's kind of showing you there are some pros and cons in deciding of whether or not you think it should roll over to the new 401k.

12:16 Or into an IRA. So those are your options. Those are what you should, you know, consider when you're figuring out which one you want to do.

12:28 And then the process of that is pretty simple for both of those. You're gonna go back Thank you. Into your portal of your previous 401k employer plan.

12:36 You're going to do a rollover. You're going to process a rollover. If you have an IRA account, you would have to go open that account first.

12:44 Get that account number. And then you'll use that account number and where it's held. Thank you. All that information on that rollover process that you do.

12:53 Most of the time you can do it online these days. And if not, you can call and you'll get some help with whoever the 401k is held through to have someone walk you through making sure it's on rolled over properly.

13:05 And then if they, it's another little side note as you're doing it, if you're doing it too, you're rolling over into an IRA.

13:13 They may, there's two options, they will do a direct rollover and get that directly to the company that your IRA is held at.

13:20 . And that's great, you don't have to do anything with it. The other option is they will actually send the check to you and you have to forward it on.

13:27 And just remember that you have 60 days to get that check deposited into the new IRA. Otherwise it would be counted as a distribution versus a return.

13:36 So you have a 60 day time period from when you've rolled it over and that check gets to you to get that check in and deposited into the IRA.

13:45 If you go over that you'll be counted as distribution. You'll get some tax documents on both sides umm just so you know for your tax for reference for your next tax year.

13:54 Umm you would get a distribution from your rollover showing that that was sent out and then you'll get a tax document from the new IRA showing you that was received.

14:04 Umm so that's how you could show the IRS both sides of that rollover equation. For your taxes. So don't be one of the 29 million people that forget about old retirement assets.

14:21 Make sure you take your money with you. It is so important. For your long term financial planning to keep track and move your old 401k and employ your plans.

14:34 Because you want to make sure they're invested properly. You want to make sure you're invested as you should be so you can get maximized.

14:40 Thanks for watching. As much growth as possible before you need to take these out in retirement. You don't want to have to get 10, 15 years down the line and figure out 5 different 401ks or where they are and get them all together.

14:52 Do this as you go. It is a lot simpler than you think. Thank you. There are also tools to help you umm make it very simple and if anything this is where it does help to hire a professional.

15:05 Let me tell you and remind you it will be a whole lot cheaper to hire a professional to help you keep track and move your old retirement assets than to forget about them and leave them where they are.

15:17 So umm pros and cons of figuring out where to spend your money. So hope that's helpful for you. Don't forget your old 401k assets.

15:28 Thanks for watching! Move them with you umm one way or another and make sure you are on track for your long-term financial savings.

15:38 A side note, another side note, side note to another side note that I've had on here, a few side notes as I'm talking through the 401ks.

15:46 Make sure you always turn on your 401k match at least minimum. So even if you like to contribute more into your Roth IRA or your IRA rather than your employer plan, please make sure you at least put on your minimum.

16:00 Mm-mm. match so that you are taking advantage of that free money because that is free money and that will go a long ways for your retirement.

16:08 Hope you guys all have a good day and we will be back together on the next episode. If you could, if this is helpful for you, please send to everyone.

16:16 If friend who might also find it helpful, please subscribe and leave a review as those help me build this and get this to more ears and more people so make sure you spread the love and have a good rest of your day.