What to do with your old 401k
Have you noticed that everyone wants to help you with your old 401(k)? That is, they’d like to help you roll it over to their firm? There’s a reason for this.
Big Money
The rollover market is huge. It is probably the single biggest movement of money in the investment industry every year. The IRS has reported that $478 billion was rolled over to IRAs in 2017. That’s a lot of money in motion. And, that’s why many investment firms are interested in your old 401(k). But there are several reasons for you to care about your old 401(k), too:
Limited Choices
Assets left in an old 401(k) are governed by your former company. If they decide to change the plan or go out of business, you have to go along with it. Sometimes this can mean involuntary changes to the list of available investments including changes to plan and fund fees. If you liked certain funds in the program, those could change and there is little you can do about it. With most 401(k) plans offering a limited menu of funds or EFTs, this does not provide you with a lot of flexibility.
While the overall trend in the 401(k) industry is towards lower fees, I have seen a few plans adopt higher fee programs. Usually this is because they are adding additional services to the plan such as participant education or other services—services that you may not need or are harder for you to access if you are no longer an employee.
Financial Incentives
Investment companies and financial advisors are interested in having you roll over your old 401(k) to an IRA with them because they will either get a commission based on the amount of the rollover or collect an ongoing advisory fee based on a percentage of the assets managed. This can be fine as long as the overall value, services, and investments offered in the rollover IRA are what you need. Unfortunately, some firms and advisors are more interested in the financial incentive of the rollover rather than whether it is really what you need.
Even fee-based or fee-only registered investment advisors like us have an incentive to get your rollover because they typically charge based on a percentage of assets managed. We do state plainly that we will always place our clients’ needs ahead of our own but the temptation is always there and must be carefully managed.
Keeping Better Track
Overall, rolling over your old 401(k)s can help you keep better track of your investments so that you can ensure that they are continuing to measure up. Over a lifetime of work, one can accumulate a dozen or more old 401(k) accounts with different investment menus, features, and costs. It can be hard to keep track of all of them unless that is your hobby.
If you care about your retirement, it often makes sense to consolidate your retirement accounts into either your current 401(k) [if you are still working] or into an IRA rollover. The nice thing about rolling it into your current 401(k), especially if you have several small accounts, is that you can keep track of your retirement without setting up a separate rollover account. On the other hand, an IRA rollover account can provide you with tens of thousands of different investment choices and, more control and flexibility.
Just take some time to learn about your options before you do the rollover.
If you have questions about your old 401(k)s, give us a call. We’re here to help.
Lyman H. Jackson
617-653-3303
Financial Planning Solutions, LLC (FPS) is a Registered Investment Advisor. FPS provides this blog for informational and educational purposes only. Nothing in this blog should be considered investment, tax, or legal advice. FPS only renders personalized advice to each client after entering into an advisory relationship. Information herein includes opinions and forward-looking statements that may not come to pass. Information is derived from sources believed to be reliable. Information is at a point in time and subject to change without notice. Such information may not be independently verified by FPS. Please see important disclosures link at the bottom of this page.