Hello friends! How are you this fine morning?
Have you ever left an employer and accidentally forgotten about your old 401(k) account? Maybe you intended to roll it over to a new retirement plan, but the paperwork felt daunting so you never got around to it …
(About 30% of you should be nodding your heads right now, according to studies.)
Then after years of the money sitting there in an unknown mutual fund, earning unknown growth, getting charged unknown fees (not to mention you’ve probably forgotten the username/password or the name of the old benefits company), you finally decide it’s time to consolidate accounts …
Well, today is your lucky day! In this post I’m going to show you how to roll over your old 401(k) into an IRA account. This will give you more control, investment flexibility, and hopefully save you a bunch of pesky 401(k) fees.
Why Rollover Your 401(k) to an IRA, Anyway?
Some people intentionally leave their money in an old 401(k) plan. This isn’t necessarily a bad option, but it might not be the most efficient in the long run.
Here are a few benefits to rolling over your 401(k) into an IRA:
- Consolidation! Did you know the average person will change jobs 12 times in their lifetime? Imagine having 12 401(k) accounts to manage, all with different fees, funds, etc. No thanks! Having just 1 IRA account is way easier.
- Better investment options. Typically, IRAs offer a much wider range of investment options compared with a 401(k) provider.
- Lower fees! Most 401(k) plans are riddled with fees. For example, I dug into my crappy 401(k) plan last year and here are the sneaky fees… (charged quarterly)
Confusing? (It’s supposed to be). Let me simplify … for someone with a $100k balance in their 401(k) account, they would be charged $622 per year! That’s ridiculous compared with the alternative of ZERO dollars that Fidelity will charge you for an IRA.
How to Rollover Your 401(k) to an IRA
I recently completed the rollover process myself, and it took me less than 30 minutes of work. My rollover will save me $13 per month in fees, every month for the rest of my life. (And my fees were small compared with the average! Your savings could be much bigger.)
Here’s a visualization of the process…
Btw, this is rolling over to a regular IRA, *not* a Roth conversion!
1. Find Your Old 401(k) Account(s)
If you already know where your old 401(k) funds are, just skip to the next step. If not, read on …
- If your old 401(k) had a balance of less than $1,000, there’s a chance it could have been “cashed out” already. The money may be sitting at the State department, waiting for you to claim it. Check this website (www.missingmoney.com) and also my post about finding unclaimed money.
- If you had less than $5,000 in your plan when you left your old job (16 MILLION accounts under $5k have been forgotten about!), there’s a chance your funds have already had a “forced rollover” and they’re sitting with a new benefits provider. Check these sites:
- National Registry of Unclaimed Retirement Benefits
- Abandoned Plan Search (search for your old employer name)
- FreeESIRA (Requires login to search)
Lastly, the quickest and easiest way to find old 401(k) accounts is by contacting your old employer directly. They should be able to tell you which benefits provider or broker your money is with.
2. Open an IRA Account If You Don’t Have One
Before ordering any money transfers, you gotta have a plan for where it will be invested going forward!
If you already have an existing IRA, you shouldn’t need to open a new account. You can just move your old 401(k) money over to the existing IRA and consolidate it all in one account.
If you’re shopping for a new broker, here’s a list of the best IRA accounts and providers for 2021. Make sure you’re 100% comfortable with the institution you pick, because ideally you want to partner with them for the long haul.
Personally, I like Fidelity because their IRAs have no account fees, no trading fees, and offer broad, low-cost index funds. My existing IRA is already with Fidelity, so it was an easy choice for me to rollover my 401(k) funds into that account.
3. Contact Your Old 401(k) Provider. Tell Them You Want to *Rollover* to an IRA
It’s really important you use the word *rollover* to make sure the money is going directly to another pre-tax account. This is sometimes called trustee → trustee rollover, or a “direct rollover.”
Benefits providers should know exactly what you’re talking about when you call and ask them to start the process. They do this all day every day and will walk you through everything.
Usually, it goes like this:
- You call your old 401(k) provider and say you want help with a rollover.
- They will ask you to fill out some forms.
- You’ll email or mail the forms to the provider (yes, these old school benefits providers still use snail mail and need a serious technology upgrade!).
- They will ask who and where the money should be sent to. You want the funds to be addressed to your new IRA provider. This is *not* a personal money withdrawal. Each provider will have slightly different wording, but for this step, it means your disbursement check will read something like “Schwab Trust Bank FBO Jane Doe.” (FBO means “for the benefit of.”)
- Once your old 401(K) has processed the form, they will liquidate whatever investments you had
4. Get Your Snail-Mail Check and Deposit It in Your IRA
A check for the entire account balance will be posted to your mailing address (sometimes they will send the check directly to your new broker, but many times they mail the check to your house for some weird reason).
When you get the check, just deposit it with your new broker in your IRA account. (Fidelity let me do a mobile scan deposit to upload my check — easy peasy!)
Here’s the visual process again…
This whole process can take as little as 1 week, or as long as 3-4 weeks. It all depends on the 401(k) and IRA providers you’re working with. It took me 9 days from start to finish after I made the first phone call.
5. Don’t Forget to INVEST the Money!
Once you deposit the funds into your new IRA, you need to make sure the money is working for you and growing your retirement nest egg.
I’m not a licensed financial advisor so I can’t tell you how to invest your money… But I can tell you what I’m doing with MY retirement accounts…
I plan to invest 100% of my money in Bitcoin. Cryptocurrency is the future.
Just kidding!!! Since I’m 36 years old and probably won’t touch this IRA until my 60’s, I’m investing in a total stock market index fund. This gives me low fees, broad diversification, and I don’t have to actively manage anything.
It’s Time to Get Rollin’
So, do you have an old neglected 401(k) account floating out there somewhere? It’s time to complete the rollover process and take control of your finances.
Do yourself a favor and make the first phone call this week.
How can I help?
Joel is a 35 y/o Aussie living in Los Angeles and the guy behind 5amjoel.com. He loves waking up early, finding ways to be more efficient with time and money, and sharing what he learns with others. Rise Early | Retire Early!