When making a job transition, there are a lot of things to think about. Many times it involves starting with a new employer, relocating, or any other number of changes and decisions to make. One thing that many people often overlook is their old company’s retirement plan. When you separate from service, you have the opportunity to move the assets into another employer- sponsored plan, or roll the funds over to an IRA. All too often, however, people tend to forget about these plans, and don’t even bother to monitor the investment options or portfolio allocation. Here are the three main choices that you have with that old employer-sponsored retirement plan.
1) Keep the assets in the old plan. This may be a fine option if the plan has a wide menu of good investment choices and low costs. It is often difficult to determine exactly how much in fees you are paying for your retirement account. (yes, you ARE paying something for it). Sometimes they don’t even show up on your statement. The best way to get the info on fees is to call. If you choose to keep the funds in the old plan, it is important to integrate the plan into an overall investment allocation strategy, and revisit the investment options and total allocation at least once per year.
2) Roll the assets over into an Individual Retirement Account (IRA). An alternative to keeping the funds in the old retirement plan is rolling the assets out into an IRA. The primary reasons to do this are: access to more, and potentially better investment choices, lower costs, and account consolidation with your other investment/retirement accounts. One downside to rolling the funds into an IRA is that qualified plans, including 401(k)s, offer a higher level of liability protection from personal lawsuits and bankruptcy. If you have any concerns here, you should consider keeping the funds in a qualified, employer-sponsored plan.
3) Roll the assets into your new employer’s retirement plan. This option would allow you to consolidate your retirement plans and keep things simple from a management perspective. Not all employers allow assets to be rolled into a plan, so you would need to investigate whether this is an option. An important consideration is to evaluate the investment options and fees inside of the new retirement plan. Make sure you have a good menu of quality, low cost investment options. If not, one of the other options may be a better bet.
When faced with a job transition, it is important to determine what you should do with that old retirement plan. Don’t let inertia keep you in a less than optimal investment situation. Consider your options carefully, and be sure to evaluate the investment choices and costs of all options before making a decision.
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