I know quite a few people who switched employers but kept their old 401ks behind. I really haven’t found a strong reason to keep my old 401k with my previous employers. The 401k that I currently own is my third one in 17 years. What did I do with my prior 401ks when I switched jobs? I rolled them over to a traditional IRA!
Here are four reasons to convert your 401k to a rollover IRA:
1. Keeping things simple:
If I did not rollover, I would be sitting on three 401k accounts, each managed by a different retirement plan company. Logging into different accounts, monitoring fund performance, rebalancing, and performing other account activities is painful for me. I like to consolidate, have one view of my retirement accounts and keep things simple.
2. A variety of investment options:
The 401k that I currently own has limited investment choices. Same thing with the older 401ks – a few stock based, bond based mutual funds and the company stock. Nothing to be excited about! Also, these funds may not be very well known in the investing community. With my IRA I have access to tons of ETFs, Mutual funds as well as individual stocks with which I can build a well-diversified portfolio as per my investing preferences.
3. Lower costs:
The funds in 401ks generally have higher expense ratios (operating/managing fees). The higher the expense ratio, the lower your return. The money lost to fees would have rather stayed in your account and compounded year over year making you much more money in the long run.
With an IRA, you can invest in low-cost index ETFs/mutual funds that can help you save on fees. One of the most popular index funds – Vanguard Total Stock Market ETF (VTI) has an expense ratio of 0.03% which is just $3/yr for every 10,000$ invested. More money that stays in your pocket and works for you to make even more money!
4. Better website and online tools:
The three retirement plan websites that I have used are not really user friendly. Finding your transaction history or your fund performance requires multiple clicks and navigating through multiple pages. These sites may also lack tools such as retirement calculators and investing knowledge articles. If you maintain your IRA with a company like Fidelity, Vanguard or Schwab you will be presented with a website which is super easy to use and provides several tools, investing articles that can assist you in making good investment decisions.
Doesn’t make sense to keep money in old 401K accounts. Better to move that money to a traditional IRA and manage in one place.
Yes, keep life simple and uncomplicated!
Been procrastinating on this one. I have two 401Ks with my old companies and one with my current company.
I didn’t wait too long. I moved money from my 401K to a traditional IRA within two months of leaving the old company. One of the major reasons being – I just didn’t like the funds in my 401K.
Moved away from my old employers 401 for the same reasons. Didnt like the funds and didn’t want to maintain multiple accts.
I need to do this. I have a 401 with my old company that I left more than 2 yrs ago. Hate maintaining too many accts.
When you leave a company, take your 401K along with you 🙂