Consolidating Employer Retirement Accounts - Rodgers & Associates

Consolidating Employer Retirement Accounts

The average American will hold 11 jobs between the ages of 18 and 62, according to the Bureau of Labor Statistics (2010). When you start a new job, you probably remember to pack your personal items and update your contact infor­mation, but do you consider what to do with your 401(k) held at your previous employer? It’s easy to leave behind.

A recent Merrill Edge survey found that nearly half (46 percent) of mass affluent Americans plan to rely solely or heavily on retirement plans offered by their employer for their retirement savings, such as a 401(k) or 403(b). This makes it more important than ever to keep track of your retirement savings.

Having accounts in more than one place can make keeping tabs more difficult. Rolling over your balances into one account helps to ensure you can properly track and manage your savings to help you pursue your retirement goals. When it’s simpler to monitor your invest­ments, you can make changes as needed.

Most employers will send you a notice asking you to make a decision about what you want done with your retirement account. Some allow you to leave it in place with no time table on when it must be moved. All employers will permit you to withdrawal the funds as 1) a cash payment 2) rollover to another employer’s 401(k) or 403(b) plan or 3) rollover to an individual IRA.

Cash Payments – distri­b­u­tions in cash will be subject to a 20% mandatory tax withholding regardless of your age or tax situation. The entire amount of the rollover (including the tax withholding) will become taxable in the year of distri­b­ution. There will also be a 10% tax penalty levied if you are under age 55 in the year of the distribution.

Rollover to another 401(k) or 403(b) – You will need to first check with your new employer to determine if they allow rollovers from other plans. Not all of them will permit rollovers. The human resource director at your new employer can help you with infor­mation you will need to complete the paperwork for the rollover.

Rollover to an IRA – Rolling over your old 401(k) isn’t as compli­cated as you might think. You will need to first establish an IRA with a custodian if you don’t already have one. Your former employer will provide you with the forms needed to request a distri­b­ution. Then complete the forms requesting a direct distri­b­ution to your IRA custodian. Many more employers are allowing this to be done on line or over the telephone. Your financial adviser can help you with this trans­action to make sure every­thing is done properly.

Consol­i­dating 401(k)s into a single IRA account can make it easier for you to track and manage your retirement assets now, as well as when you start to withdraw funds in retirement. The process doesn’t have to be overwhelming if you remember a few simple steps – collect your account infor­mation, evaluate the choices available to you, and select a roll over solution that is appro­priate for you.