Recently, we were talking with a new client that had some questions about their retirement and an old 401K. We like to call that a “Lost 401K”.
The old 401k has been there for years. The client moved on from that job, and it's rolled over management a couple of times into different firms, and they didn't know what to do with it.
By law, we can only give them information. We– as financial advisors– can't give directives, but we did tell them what they can do: There are basically 3 options:
- Leave it there if permitted. Management fees are cheaper usually with the 401k, but your investment options are limited.
- Roll over the assets to the new employer’s plan, if one is available and rollovers are permitted.
- Cash out the account value, but of course he's going to pay Uncle Sam. Additionally, you may be subject to an early withdrawal penalty. Or…
- Roll it over into an IRA. When done properly, this transfer can often occur without triggering taxes at the time of the rollover.
So what would rolling over a 401(k) even mean? Isn't an IRA just a kind of savings account?
An IRA technically is just a label that you put on any type of investment. It could be a savings account, a stock portfolio, mutual funds, or an annuity (plus many other options). Any type of investment can have the label IRA. IRA is more of a container for investments for individuals outside of their employer. Hence Individual Retirement Account.
Do you have questions about a Lost 401(k)?
If you have an retirement account like an old 401k from a previous employer and you're unsure what to do with it, it may be worth reviewing your options.
Managing Director Jim McCrorey, a Certified Retirement Counselor® (CRC®) through the International Foundation for Retirement Education, helps individuals evaluate their retirement accounts and understand their rollover options.
If you'd like help reviewing a “lost” 401(k), reach out to Jim to start the conversation.