Thursday, November 8, 2012

Should You Move Your Old 401k to Your New Employer?

Answer: MAYBE

Moving your old 401k to your new employer’s 401k plan could be good, but like all things in financial planning… There is no cookie cutter answer.

Check out the rules with your new company.
Your old employer has no say in the matter. If you want to move the 401k, you can. But your new employer may or may not allow plan-to-plan rollovers.

You may want to keep things simple.
The advantage of the rollover to another 401k is that all of your money is in one place, and you only have one account to think about. You can also make all of your asset allocation decisions inside one account. 

What are the costs in new plan?
This one trumps the first two considerations in my opinion. The downsides of many 401ks are their exorbitant costs, and these costs can wreak havoc on your retirement goals. The cost of the mutual funds in your new 401k plan is likely to be higher than the mutual funds you could select inside your own IRA. For that reason, I like rolling over into IRAs most of the time. Check the fees on the mutual funds in your new 401k. If most of the funds have an annual expense ratio more than 1% per year, you can do better in an IRA. Ask your human resources department for their latest 401k fee disclosure

Will you be able to get diversified?
Make certain your new 401k has enough choices for you to allocate your assets the way you need to. If not, a good IRA provider offers all the choices you could possibly need—and more. Basic asset classes your new 401k should have: US Stocks (large, mid, & small), International Stocks (large and emerging markets), Fixed Income (US & foreign with a range of maturities), Real Estate, and Hard Assets/Commodities.

Don’t be a do-it-yourselfer!
You may be able to grout the tile in your shower because you watch the DIY network, but investing doesn’t work this way. Most retail investors way under-perform the market because they have no clue what they are doing. Also, most Financial Advisors are just mutual fund salespeople. They have no incentive to show you all the great commission free funds that are out there. By using a traditional Advisor, you may end worse than if you just screwed it up yourself. I suggest working with a FEE-ONLY Certified Financial Planner because they must act in your best interest, and have been trained in all aspects of financial planning.

For more about my Fee-Only Financial Planning practice, go to or call 615-878-2134.

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