How to Roll Over a 401(k) to a New Employer
What should be done with the old retirement plan when each new job comes with a new one?
During a career, job switching may happen several times. But going from one company to another company always requires adaptation, and it can be confusing to decide about the money in your old company’s 401(k). Mostly, it is chosen to roll over a 401(k) to the new company — in simple words, move your saved money from the previous employer’s plan to the new employer’s plan, for which you will not owe any tax payable. However, if we consider the best choice for your 401(k) savings, there are many options to be looked at.
Why Roll Over your old 401(k)?
At times, once you leave, your old employer does not want to bear the administrative costs of the maintenance of your account anymore. In this situation, you will have to transfer your account and savings to the new employer or somewhere else. In any instance, if your old employer allows you to keep your old 401(k) with him, there are many facilities to transfer your account’s savings to the new employer’s retirement policy.
Majorly, it will make it easy for you to keep the record maintained regarding the policies, investment plans of a single broker at a time. Thus, making it simpler to keep your account with a single employer.
Your investment’s strategy can also be reviewed and tracked easily. As if it will be difficult for you to look for two or more accounts at one time. Even if your investment plans change, for example, when you decide to convert some of your stocks into bonds, you will have to update all of your previous account statuses to successfully invest your savings as you want. This increases the challenge of maintaining your investments and opens you to making mistakes.
And as unrealistic as it sounds, employees forget sometimes about their old investment plans. Indeed, the National Registry of Unclaimed Retirement Benefits voluntarily helps you to relocate the forgotten or lost accounts to provide the beneficial right to the actual employees. Therefore, when you drive over to your new employer’s plan, there is no risk of losing a previous account status.
Roll Over your 401(k) to an IRA:
Moving towards your new employer’s plan is not the only way out. You can also transfer your savings to an Individual Retirement Account (IRA), an outsource retirement plan that you operate and gets benefit other than your workplace independently. If you already own an IRA, you can move your previous saved money in it without any difficulty. If you don’t have one, you may open it through any financial organization at any time by simply filling out some forms and making an IRA account. However, when you transfer savings to an IRA account from your previous 401(k), you can only withdraw money from it after you get 59.5 years of age; otherwise, you will have to bear a penalty charge of 10 percent until then.
When you are not offered a retirement plan in your new job, it will be allowed by the IRA to transfer your previous money and deposit your future savings for retirement. Nevertheless, when you are being offered a retirement plan, even then, you can compare them both, and you may choose one after carefully comparing the account fees, etc. for your optimum benefit.
Rolling Over your 401(k) to a new employer:
There are two different ways you can drive over a 401(k) to a new employer. First, you can ask the trustee of the retirement plan to move the saved amount directly between the old and new 401(k) so it is never in your hands. Your trustee may be your former employer or an investment manager who manages your plan. You have to fill out a rollover form showing your new account details, and the trustee may then transfer the amount according to your plan. It is the easiest way, as a “Direct Rollover.”
Another option is first to get your amount from your trustee in your account. You can transfer the received savings into your new 401(k) plan or another desired retirement plan within 60 days period. Due to any reason, if you took more than 60 days, the IRS will consider it as a withdrawal instead of a rollover. If you did take more than 60 days, it will not only cost you a 10 percent withdrawal penalty (if you are younger than 59.5 years) and some payables as income tax. Surely, you will want to complete the rollover before 60 days to avoid this penalty.
Keeping your old plan of 401(k):
You are not allowed to deposit more money into your 401(k) once you left the old job. Few employers will enable you to use the plan’s investment for the contributed money. Therefore, in most cases, this is more beneficial than moving savings to IRA or a new 401(k).
For example, when your old employer has low managing fees as compared to the new employer, this can be a significant reason not to transfer. Or if an investment’s fund is not in your new plan, you might choose to keep the old plan. But you will have to ensure a great financial advantage to keeping your old 401(k), as if you will not transfer, it means you will have to look after one more account.
While switching jobs, there is a lot to plan for future growth, but finding the right plan for your previous 401(k) must be your top priority. Once your retirement plan is on its route to excellence, you can settle into your new job.
Relocating a Lost 401(k)
Whenever you are not sure about the previous retirement savings are being claimed or not, you can still know about the facts regarding it by focusing on some key steps.
There can be many reasons you can lose the status of a previous 401(k).
Bureau of Labor Statistics suggests that, on average, you do about 12 jobs between the ages of 18 and 50. This increases your chance of losing track of a 401(k).
In 2016 U.S Government Accountability Office conducted a survey; a total of $35 million unclaimed retirement savings was found from data provided by only 17 states. The actual amount would be a lot higher than this as most of the other states did not provide the data.
Consider the following steps to find a lost 401(k).
How to Find a Lost 401(k)
Whenever you are not sure about the previous retirement plan’s claim, you should be in contact with your concerned employer or planner. At times, it would be hard to find who the planner was. You can find your provider’s information with the below methods.
Consider Contacting Your Previous Employer
You should try to call your previous employer. Ask Human Resources or Accounts department by providing your name, social security number, and employment tenure. They might be able to find your plan provider’s contact details if you had a retirement plan with them.
Try to Get in Touch with Old Coworkers
Sometimes organizations change their locations, operate with a new name, merge with others, or shut their operations. When you can’t find your previous employer due to any of the stated reasons, you could try to find any of your former colleagues and find out if they held onto their retirement plan. You can use Social Media; it may be the simplest and most effective way to contact your plan’s provider.
Research the Plan’s Form 5500
Department of Labor’s website can be used here to search for your plan’s form 5500, as it is mandatory to file taxes for most of the retirement plans. If you do so, the form might include the contact details of the plan provider. You can call directly to them to check your 401(k) status.
If You’re Unsure Whether You Have a Lost 401(k)
It is quite easier to find an unclaimed 401(k) account if you are aware of it, but sometimes there are previous, pending retirement plans unknown to you. Various databases can be checked to find any unclaimed retirement plan of your own or a deceased loved one left behind.
A private company offers volunteer service such as The National Registry of Unclaimed Retirement Benefits that enables you to find any unclaimed retirement plan with your previous employers. However, not all employers are registered, it is worth checking if you suspect any unclaimed retirement plan.
What to Do with Your Lost 401(k) Funds
A little effort would help you to identify your lost 401(k), if any. Of course, any additional accounts can make retirement that much easier on you.
If you found a lost or misplaced 401(k) or any other retirement plan, you will owe income taxes as per the governed policy, and if you are younger than 59.5 years, you may owe 10 percent additional penalty on an early withdrawal. Plan to rollover the lost 401(k) into your new employer’s 401(k) plan, if possible. Alternatively, you may also plan to rollover the lost account amount into an IRA.