19 January 2012

Changing Jobs? Save that 401(k)!!

Okay, we've got a new year, lots of cool topics are starting to crop up, so maybe it's time to start blogging again.


Often when workers change jobs, they find themselves with a decision to make: What do I do with this little old retirement account? It could be a 401(k) or a SIMPLE IRA. Depending on how long you've been working there, the balance probably isn't all that much in terms of retirement planning. It might even look like a tasty morsel chunk of change for managing the change to a new job, or to pay off a smidgen of debt...and get stuck with some taxes.

But wait! You can save your savings and put them back to work for you! As tempting as it may be to cash out of a smallish 401(k), there is a way that you can hang onto it. The first possible alternative is to keep the account in your soon-to-be former employer's plan. This is a perfectly workable solution, but not always attractive if you are otherwise moving on emotionally. Also, the plan manager may charge former employees different fees, which nearly always means more expensive ones.

The other solution is to roll that 401(k) into a Rollover IRA at a brokerage or a mutual fund company. This will allow for emotional separation from your previous employer and potentially give you more control over your account. However, as this article from Smart Money cautions us, this can be an expensive solution. There is absolutely no reason to pay high fees on a small account. The implicit message to you from your service provider is "You are not our core business and we don't really want to be bothered with you, so we'll charge you ridiculous fees until you leave." That's okay, there are plenty of financial service providers who are interested in your business.

What would be my advice for someone with a small account who wants to roll it over? Hie thee to a reputable no-load mutual fund company and roll your account into a low-cost index fund or a balanced fund that meets your long-term investment needs. The accompanying article gives some excellent companies to consider for your account.

And if your account balance is still low enough to be charged fees? Another advantage of moving your account from the previous employer's plan is that you can always add to it. Any of the companies listed in this article will allow you to contribute to your existing account. Of course, you will want to check for income eligibility and contribution limits, but even if your new employer offers a 401(k) you don't have to let your old account lie fallow. It may just take a couple of years of channeling a few bucks a month into the rolled account to get you where you need to be.

Don't let an excellent opportunity for long-term savings pass you by just because you are getting a new job. Roll that 401(k) and keep it growing. In a few years you will be delighted that you did!

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