Gone are the days when a person was hired by one company and spent their entire career there. Instead, people move from one company to another for many different reasons.
For some, it’s because they’re looking for a career change. For others, stagnant wages push them to look for more money elsewhere. Whatever the reason, employees are leaving their jobs and their 401(k) accounts.
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A 2023 study by Capitalize found that one in five employees left a 401(k) behind when they left their job. There are now more than $1.65 trillion in assets in abandoned accounts.
Although opening multiple 401(k) accounts isn’t a big deal for some, there are benefits to combining them.
Reasons You May Want to Combine 401(k) Accounts
The average American worker is likely to have nearly a dozen jobs over their lifetime, which could mean multiple 401(k) accounts. Here are some reasons to consider combining these accounts.
Reduced fees
If you have multiple 401(k) accounts open, you’ll likely pay fees on each one. While some accounts may charge a percentage of your assets, others charge a flat monthly or annual maintenance fee.
These small fees can add up quickly if three or four accounts are opened.
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Less to watch
Managing several different investment accounts can be difficult and time-consuming. With multiple accounts, you will need to monitor each one constantly.
“Financial management doesn’t need to be harder than it is,” said Jason Dall’Acqua, CFP, founder of Crest Wealth Advisors. “Having multiple 401(k) accounts through different custodians and with different logins and investments to track makes administration, monitoring and adjustment more tedious.”
Consolidating your accounts also allows you to have a better idea of your savings, according to Dall’Acqua. “Consolidating old 401(k) accounts makes it easier to see more of your money in one place and manage it more easily. It also gives a clearer idea of where you are in relation to your retirement savings goals,” he said.
Easier for beneficiaries
When you die, your retirement accounts will pass to your beneficiaries. This will undoubtedly be a difficult time for your loved ones. Having multiple 401(k) accounts open will increase the work and stress they will experience when trying to get your affairs in order. So not only will a single 401(k) account be easier for you, but it will also be easier for your loved ones.
Aligned investment strategy
Our financial priorities change as we progress through life. When you are young and single, your risk tolerance and goals will be very different from your risk tolerance and goals when you are further along in your career. Keeping old 401(k) accounts open could make your overall portfolio ineffective in achieving your current goals.
“If that money is not managed and invested in line with a person’s overall financial strategy, then they could be taking too little risk and missing out on growth opportunities,” Dall’Acqua said. . “Or they might take too much risk, putting their money at risk when they’re about to need it in retirement.
You might forget about the account completely
Things can happen over the years and you risk losing track of your accounts completely. It can be even worse if your former employers change plan administrators. The last thing you want is for your old accounts to be lost entirely.
How to consolidate accounts
If you decide to consolidate all of your 401(k) accounts, the ideal way to manage everything is with a direct transfer. Here’s what you need to do.
Start by listing each account. You can usually do everything online or by calling the plan administrator.
Next, determine where you want to move each account. You can move them into your current 401(k) or roll them into an IRA.
Log in to your old 401(k) account or call the plan administrator. Inform the administrator that you wish to roll over your account, then request that a check be issued to your new plan provider.
Ideally, the administrator will send the check directly, but if it is sent to you, you will need to forward it so that the funds can be added to your account. But be sure to deposit the money into a 401(k) or other tax-advantaged retirement account within the deadline to avoid taxes.
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This article was originally published on GOBankingRates.com: I’m a Financial Expert: 5 Reasons to Consolidate Your 401(k) Accounts
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