By the time you’re ready to retire, you’ve probably had a number of jobs over the course of your working life. In fact, according to the Bureau of Labor Statistics, Americans hold an average of 12 different jobs by age 50. This means that it’s likely you also have more than one 401(k) account, leaving you with a few options for spring cleaning your retirement accounts; rolling over your old 401(k)s into your IRA or 401(k) at your current job, leaving it where it is, or cashing out. If you’re looking to spring clean your finances, you might want to address your old 401(k)s.
If you left a job and had less than $5,000 in your 401(k) account, you may not have been allowed to keep it in that account. But, if you weren’t prompted to move it, you may have forgotten about relatively small sums to money in different accounts. This can become an issue when people don’t know how much they’re paying in fees in their 401(k) account. Even a small difference in fees can add up over time to significant amounts of money. You can compare the fees between multiple accounts to determine whether or not to consolidate funds.
You may want to rollover funds from old 401(k)s to make it easier to manage your money. For example, if your contracts at your old company are no longer current, or your investment portal changes, it can mean more paperwork to keep track of. You’ll need to assign beneficiaries to all your retirement accounts, and remember to update all of them in the event of divorce, death, or another life-changing event. If you are no longer able to directly handle your financial affairs as you get older, reducing financial clutter can make it easier if you’re thinking about how to pass on a retirement account.
You can roll over your old 401(k) into a traditional or Roth IRA. The transfer to a traditional IRA is simple, as both contributions were made pre-tax. But, if you roll it over into a Roth IRA you must pay tax on the funds and may have to increase withholding or pay estimated taxes to account for the liability. If your 401(k) was a Roth account, you will not pay tax on the funds you rolled over into a Roth IRA.
If your finances need some spring cleaning and you’re unsure of which option for your old 401(k) is best, contact the professionals at Epstein & White. We can help you create a retirement plan that help you make the most of what you’ve earned. Click here to schedule your no cost, no obligation financial review today.