What Should I Do With My Old 401(k)?

Do you have a 401(k) résumé?

It is common for people to accumulate a workplace retirement account at nearly every job they hold. As their careers progress, those old 401(k)s remain with former employers, sometimes without receiving much attention. Before long, their account history begins to resemble a résumé of everywhere they have worked.

The idea usually gets a chuckle during a financial planning meeting, but scattered accounts can make managing a retirement strategy more complicated. Consolidating may help simplify the picture, but the right destination for an old 401(k) depends on your employment status, investment options, retirement plans, and potential Roth contribution strategy.

Moving an Old 401(k) Into Your Current Employer’s Plan

If you recently change jobs and already have access to a 401(k) through your current employer, one of the simplest options may be rolling your previous 401(k)s into the active plan.

This approach brings your former retirement accounts together with the account receiving your current contributions. Instead of monitoring several plans connected to different employers, you have one central account to review and manage.

Convenience alone, however, should not determine the decision. Before completing a rollover, review the investment choices available through your new employer’s plan. Those options need to work with your overall investment goals. If the plan provides suitable choices, consolidating your former 401(k)s there may create a cleaner and more manageable arrangement.

If the available investments do not meet your needs, another destination may make more sense.

Using a Rollover IRA for Greater Consolidation

Rather than transferring an old 401(k) into a new employer’s plan, you may choose to establish a rollover IRA. The account can be opened with the custodian you select, such as Charles Schwab, Fidelity, or Vanguard.

A rollover IRA allows you to bring assets from one or more previous workplace plans into a single account. That consolidation can make it easier to see how the investments fit together and reallocate them according to your broader investment objectives.

This may also be a practical avenue once you are fully retired and no longer contributing to an active employer-sponsored plan. Instead of leaving retirement assets divided among former employers, you can organize them within a rollover IRA.

The decision is not simply a choice between the most convenient accounts, though. For someone who is still working, opening and funding a rollover IRA may affect another planning opportunity.

Consider Backdoor Roth Contributions Before Choosing an IRA

If you are still employed and want to preserve the option of making backdoor Roth contributions, be careful before moving old 401(k) assets into a rollover IRA. Holding those assets in an IRA may interfere with your ability to use that strategy as intended.

In that situation, rolling former 401(k)s into your current employer’s 401(k) may be the more appropriate way to consolidate the accounts while keeping the backdoor Roth option available.

This is why the destination of an old 401(k) deserves more consideration than simply choosing whichever account is easiest to open. A rollover that appears straightforward can affect other parts of your financial plan. Before moving the money, consider both what the change simplifies today and which planning opportunities you may want to preserve for the future.

Roth 401(k) Money May Require a Second Account

Your old 401(k) may contain more than one type of money. If you make Roth contributions through a former employer’s plan and decide to move the assets out of that 401(k), a rollover IRA alone may not accommodate everything.

You may need to establish two accounts: a rollover IRA for the applicable 401(k) assets and a Roth IRA for the Roth portion. Recognizing that distinction before beginning the transfer can help you prepare the correct accounts for each type of retirement savings.

Reviewing how your old plan is structured is therefore an important step. Do not assume that every dollar in the account necessarily moves to the same destination.

Your 401(k) Résumé Should Support One Coordinated Plan

Collecting a 401(k) at every stop in your career is easy. Deciding how those accounts should work together requires more thought.

Your current employer’s plan may provide the simplest destination when its investment choices fit your goals, particularly if you want to keep the backdoor Roth option open. A rollover IRA may provide another way to consolidate and manage old accounts, especially during retirement. If Roth money is involved, you may also need a Roth IRA.

Before initiating a rollover, speak with a financial advisor about how each option fits into your complete financial plan. Wiser Wealth Management can help you review your old accounts, consider the available investment options, and evaluate how a rollover may affect your broader retirement strategy. Reach out to schedule a complimentary consultation with one of our financial advisors today.