When (and How) to Roll Over Your Retirement Accounts

The Story

Meet the rollover: when you transfer money from one retirement account – like a 401(k) from a former employer – to a new one. Like a 401(k) sponsored by your current company or an Individual Retirement Account.

Why do I have to do that?

You don’t. But here are some reasons you might want to:

• You like the simple life. Consolidating can help you stay organized – now and later, when you’re withdrawing money you need to live on during retirement. Bonus: if you roll an old 401(k) into a new one at your current employer, you can keep adding to the same balance.

• You don’t have a lot of money saved yet. If you have less than $1,000, some 401(k) plan rules allow your employer to cash you out. (Hi, tax bill.) If you have between $1,000 and $5,000, they might roll it over to an IRA instead. Check the rules that apply to you so you’re the one making the call.

• You might pay less in fees. Some 401(k)s pass on administrative fees to participants. If your new company’s 401(k) or an IRA charge less, a rollover could = savings.

• You need more options. Employer-sponsored retirement accounts typically come with a few standard investment options. If you want to spice up your life, an IRA could be a better fit. They let you invest in pretty much anything. Just know that investments usually come with fees. And some 401(k)s offer cheaper options than accounts you run yourself. So make sure to factor those costs in your decision.

Got it. So how do I actually roll over an account?

Call your old plan admin, aka the financial institution that handles your 401(k), and tell them you want to start a direct rollover. That’s when the old plan admin transfers the balance of your retirement account to your other account. The money never hits your bank account.

If you like living on the edge, you could opt for an indirect rollover instead. That’s when your old admin writes you a check, and it’s on you to transfer it to the new plan admin. You usually get 60 days to hand it over or risk paying taxes and penalties.

theSkimm

You wouldn’t leave a job without your desk plant or snack stash. Don’t forget to make a plan for your retirement money either. Decide what to do based on what saves you the most money and gives you access to the investments you want.

Want more info about saving for retirement? Get it here.