Smart Women Smart Money | Harris & Harris Wealth Management

An ING Direct USA survey revealed that 50 percent of American adults who’ve participated in a 401(k) or equivalent retirement plan left an account at a previous employer.  Are you one of them?  If not, are you confident that you made the right decision?

After reading my previous post, you may be curious about how to handle an old 401(k) or pension.  As I shared, I always took my funds with me when I left a former employer.  Specifically, I would transfer the funds to a rollover IRA.  The rollover doesn’t incur any tax penalties, and allows you to invest in many different investments offered by your new financial firm.  A rollover IRA allows the preservation of the tax-deferred status of the old 401(k) and aren’t subject to the annual limitations of direct contributions. 

By the way, there is no limit on how much you can roll over into a rollover IRA.  Therefore, you can then consolidate multiple 401(k)s into one account.  This allows you to see everything you have and do a better evaluation of all your funds.  Now with more choices, you and your planner can determine what investments you want to make within your risk profile based on your personal goals.  Having old 401(k)s in different places can result in them being out of sync with where you are today and with your current investment personality.

Some of you may consider cashing out an old 401(k). Please reconsider.  That $30,000 account here and $25,000 account there all grows your overall nest egg.  All retirement savings ultimately leads to helping you achieve your goals.

You’re probably wondering if there’s ever a reason to leave an old 401(k) alone or transfer it to your new employer?  Sure, if you are in a highly litigious industry such as a physician owning a private practice or business owner and need creditor protection, because this is quite important to you.  A 401(k) has the most protection from creditors, even all forms of creditor judgments including bankruptcy.  Just so you know, there is protection for IRAs, as well. You may want to discuss protection strategies for your business and retirement with your planner. As a business owner, you have to plan for possible contingencies.

But if the above scenario isn’t you, don’t just leave money in an old 401(k).  Rolling over a 401(k) to an IRA can provide a wider range of investments with lower fees and easier access to your money.  As you can see, you need to do a proper evaluation of your options just like you’d do when you’re looking for those perfect pair of open toe red bow d’Orsay stiletto pumps.