What Should I Do with My Old Retirement Accounts?

Times have changed. Your parents may have worked for the same company their entire career, but we’re in the day and age of job-hopping. A Bureau of Labor Statistics survey shows that workers stay with the same employer for 4.2 years. Changing jobs every 4 or 5 years leaves workers with multiple retirement accounts.

Sound familiar? Continue reading below to learn about the available options and factors to consider.

What Are My Retirement Account Options?

Keep As Is. One option is to do nothing. Once you separate from service, no additional contributions can be made but you’re allowed to keep your plan under the same custodian. Your investment options will remain the same and you’ll still have the ability to change your allocation and beneficiaries. Remember to update your mailing address with the plan administrator every time you move.

Transfer to an IRA. You can roll your 401(k) or 403(b) into a new or pre-existing IRA. Account rollovers do not count as contributions. The transfer can take place in one of two ways: your plan administrator can distribute the money or you can request a check for the entire balance of your old employer plan. Beware — if you go the check route you must deposit the entire amount into their IRA within 60 days, otherwise the distribution becomes subject to taxes. Penalties can also come into play if you’re under the age of 59 ½.

Roll to Active Retirement Account. If you participate in your current employer’s retirement plan, you may have the opportunity to combine your old accounts with the new. Check with your plan administrator to ensure that your current 401(k) accepts rollovers.

Make Withdrawals. Theoretically speaking, you could withdraw the money. Because the money went in tax-free, the distributions are taxed at ordinary income rates. Most withdrawals made before the owner’s age 59 ½ are also subject to a 10% early withdrawal penalty. However, the penalty is waived for workers who separate from their employer at age 55 or later.

How Do I Decide Which Retirement Options to Choose?

Investment Options. First and foremost, consider the different investment options offered in your accounts. Employer-sponsored accounts (think 401(k)s and 403(b)s) provide participants with a short list of investment options to choose from. Some plans offer a self-directed brokerage window that grants users the ability to invest outside of the plan’s investment lineup. This benefit comes at a cost which is likely a small annual fee. On the other hand, IRAs allow you to invest in almost everything, including real estate!

Fees. If you have cable, there’s a good chance you’ve had a front row seat to the price war going on in the broker industry right now. Brokers and custodians have been lowering their trading fees and many have eliminated their account fees completely, giving individual investors a low barrier to enter the market. Generally speaking, IRA fees are lower than 401(k) fees. 401(k) plans charge three types of fees: administrative fees, investment fees, and individual service fees. Your employer plan is required to send users a quarterly statement that details returns and fees.

Strategy. Have you heard of the term “backdoor Roth IRA”? If so, you may know that in order to implement this conversion tax-free you must move have all pre-tax money in an active retirement account. Backdoor Roth conversions are very tricky. Before moving money, consult your financial advisor and/or accountant to verify that you’re taking the appropriate actions.

Other Retirement Planning Comments and Considerations

Roth 401(k)s. Roth 401(k)s are an exception to some of the comments above. If you made Roth contributions, you can actually transfer the Roth portion into a Roth IRA tax-free. Employers are not allowed to make Roth contributions. Therefore, if your employer made matching or profit sharing contributions, you can only transfer the pre-tax portion into another 401(k) or IRA.

Employer Stock in 401(k). It’s common for publicly traded companies to permit employees to own shares of the company within their 401(k). Remember—401(k) and IRA distributions are taxed at ordinary income rates which are less favorable than the long-term capital gains rates levied on brokerage accounts.

A special rule exists that allows employees with company stock to transfer the shares in-kind to a brokerage account. At the time of the transfer you will owe ordinary income tax on the cost basis of the shares. This is a great tax-saving strategy for employees with highly appreciated company stock.

Can’t find your old retirement account? There are several reasons why you may have lost track of an old retirement account. For example, you could move and forget to provide your new address to the custodian or your former employer has gone through a merger or relocation and the plan was lost in the shuffle.

If you think you have an outstanding retirement account, check the National Registry of Unclaimed Retirement Benefits or the US Department of Labor’s Abandoned Plan Database to check for accounts in your name. Additionally, many states have websites set up to locate unclaimed money. When businesses owe money to an individual that they can’t locate, the money is sent to the state-run unclaimed property office.

Finding Your Retirement Planning Path

When it comes to organizing your retirement assets there are several great options. In order to develop a plan of action consider the investment options, fees, and your overall retirement strategy. The world of investing is overflowing with rules so don’t hesitate to get a financial planner or accountant involved.