Risks of Leaving Money in an Old Retirement Account
Ever transition to a new career only to feel like you’re forgetting something important? It’s your money – the savings you’ve accrued in your previous employer’s retirement account that you might not know how to move. While it may seem like the easiest choice to leave your money in this plan, many potential issues can arise. Here are a handful of risks that come with leaving money in an old retirement plan:
1) You lose track of your savings or forget about them altogether.
When leaving a profession, the last thing you want to do is worry about an old retirement account, but it should be the first thing you think of. Why? At a base level, ignoring or forgetting that old retirement account makes it increasingly difficult to keep track of how your investments are performing.
2) Your previous employer still has control over your account.
There’s no guarantee your previous company will look out for your best interests. Thus, if your company switches plans frequently, you’ll have to track where your money has moved to and review the new options within these plans each time.
3) Your previous employer’s company could go belly up.
When an employer retirement plan invests in company stock, you have no guarantee that the company itself won’t get into trouble. At this point, you’ll have to navigate through different institutions to find your money. This becomes even more tedious when you forget old passwords or emails.
4) You miss out on investment opportunities.
If your assets are still with a previous employer’s retirement plan, you’re limited by the investment options your employer chooses. You also won’t be able to contribute any more money to the account now that you’re no longer with the company. Your money might also be invested in a portfolio that is no longer aligned with your goals, leaving you vulnerable to unnecessary risk. Additionally, as you near retirement, your goals will change, and you’ll want the freedom to adapt as necessary.
5) If you have multiple accounts from different employers, this could lead to an incohesive investment strategy.
When you have multiple retirement accounts, your money may be invested in each account in different ways based on previous risk tolerances that no longer align with your current financial goals. Having mismanaged money in another “basket” from an old retirement account makes it that much harder to consolidate into your portfolio down the road. Overall, when you work with your advisor to have one retirement account, all your money can “work together.”
Seize Control and Choose a Rollover
If you just don’t know what to do with your savings from a previous employer’s retirement plan, consider these options:
1) Rollover the balance to your current employer’s retirement plan.
If your current employer’s plan allows it, roll your previous plan over and keep your savings in a tax-deferred account. This will also enable you to communicate more freely with a current employer versus a previous one that you no longer interact with.
2) Rollover the plan into an IRA.
Rolling over your plan into an IRA has great potential to broaden your investment options, increase your money tax-deferred, and reduce the administration fees that over time, eat into your investment returns. An IRA enables you to work with an advisor to incorporate both tax and investment strategy for your retirement, and it can even include a beneficial Roth conversion.
It gets more difficult to reclaim your retirement assets the longer you wait and the further you move from your previous profession. Before choosing to move your money to another plan, whether a new employer’s or an IRA, review the details of your retirement plan and walk through them with your advisor to ensure these retirement plans align with your goals.
At Storen Financial, our fiduciary advisors work to develop a long-term financial plan that implements customized, tax-saving strategies based on your unique situation.
Need help determining the next steps for your retirement plan? Or interested in a consultation? Click here to contact us now. Or click here to learn more about our Financial Planning and Investment services.
Want to learn more?
Here are a few more resources to help answer your questions…
What to Do With Your Old 401(k)? – Forbes
Here’s What to Do with the Money Left Behind in Old 401(k) Accounts – Kiplinger
The Problem With (And Solution to) Leaving Your 401(k) with Your Former Employer – Forbes
Top 7 Reasons to Roll Over Your 401(k) to an IRA – Investopedia
Blog by Alex Kiritschenko, EA – Financial Advisor, Senior Tax Accountant
Traditional IRA account owners have considerations to make before performing a Roth IRA conversion. These primarily include income tax consequences on the converted amount in the year of conversion, withdrawal limitations from a Roth IRA, and income limitations for future contributions to a Roth IRA. In addition, if you are required to take a required minimum distribution (RMD) in the year you convert, you must do so before converting to a Roth IRA.