How to Manage Your Former Employer’s 401(k) Balance

It’s official. You get a new job and are excited to start your new opportunity. However, you still have a nice chunk of change sitting in a 401(k) account with your former employer. What do you do? This blog answers how to manage your former employer’s 401(k) balance.

What are my options? 

There are four options for managing your former employer’s 401(k) balance. 

  1. If your balance is large enough, typically over $5,000, you can choose to leave it in your ex-employer’s plan. 
  2. Assuming they accept rollover contributions, you could roll that into your new employer’s 401k plan. 
  3. You could roll that money into an individual retirement account.
  4. You could take a distribution in cash. Keep in mind that if you’re going to take a distribution in cash, you want to check with a tax professional to make sure you’re aware of the tax implications of that decision. 

What’s the best strategy?

The first place you want to go is to your former employer’s 401(k) plan. Typically, if you log in to your account, you can download a participant fee disclosure form. If you can’t find it on the website, you can contact the service provider or contact your employer for that information.

Once you have that information, you need to get the same information for your current employer’s 401(k) plan. That way, you can compare the investment performance and the cost of those investments. All else being equal, you typically want to put the money where the lowest costs are. When you’re considering IRA providers, you will want to pay attention to those costs as well for the investments and the account. Again, you’ll also want to be aware of any tax implications of taking the distribution in cash. If you decide to go with the cash withdrawal.

How much work is this for me? 

Gosh, that sounds like a lot of work? It really isn’t. Let’s put all the steps together. 

First, you determine where you will put the money. Either you plan to roll it to an IRA or your new employer’s plan or take a cash withdrawal. 

Once you’ve made that decision, you need to request a withdrawal form from your prior employer. You can usually either download that off the record-keeping system you log into to view your account, contact the record-keeper via phone, or ask your employer for that information. On the withdrawal form, you will complete some information about yourself, the type of withdrawal you’re requesting, and if you are rolling that into an IRA or your current employer’s 401(k). They need to know where to make that check payable. You can get that information from your IRA provider or your current employer’s 401k plan. 

Once you’ve completed that information and signed off on the form, you send it in, and they either send the check directly to you or directly to the IRA custodian of your new employer’s 401(k) plan. If you’re sending it to the new employer’s plan, there might be an additional form they need, something called a rollover acceptance form or a rollover contribution form (a simple one-pager). 

If you have questions, contact your current employer, prior employer, or IRA custodian. Most importantly, get the information you need to make a sound decision and take the initiative to complete the paperwork and get the money consolidated. 

The takeaway? 

It’s much easier to manage one account than multiple accounts with different custodians.

It’s going to make your life a lot easier to manage and make you feel a lot better about yourself and your retirement plan. 

Want to learn how to minimize your taxes in retirement? Read our last blog by clicking here.

Is the market making you question your investment choices? Check out our video Mistakes 401(k) Participants Make During Market Uncertainty

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