How to Rollover a Retirement Account

If you’ve transferred jobs more than once, you may find yourself with several retirement accounts at various employers. So what do you do about all these old retirement accounts?

DECIDE WHAT OPTION BEST SUITS YOUR NEEDS

You usually have four options when it comes to managing old retirement accounts. You can leave the accounts alone (assuming that’s allowed by your old plan); you can move the accumulated assets into your new account (assuming that’s allowed by your current plan); you can cash out the old account (understanding there will likely be penalties involved); or you can roll it all into an IRA.

Rolling over your retirement accounts into an IRA (Individual Retirement Account) is often the best bet. Not only does this consolidate your assets into one place, making them easier to keep track of, but IRAs usually offer more investment options and flexibility than a 401(k). Rolling over to a 401(k) can be a bit tricky, and if you do it incorrectly, you may find yourself paying a penalty.

Make sure you understand your options and the consequences of each before making your decision. Consider speaking with a retirement specialist if you need additional guidance.

FIND A BROKERAGE FIRM

You’ll want to select a brokerage firm, so be sure to do some research before deciding which firm you’d like to use. 

If you already have retail accounts, you may want to open your account with the same firm. In some instances, you might even be eligible to receive discounts if your assets are over a set minimum amount. Ask about fees, including low balance fees and annual fees, and choose an account with features that best serve your needs.

CONTACT THE PLAN ADMINISTRATOR TO INITIATE THE ROLLOVER

Once you’ve chosen a brokerage company and opened the account, contact the plan administrator for the plan in question and ask for a direct rollover. With a direct rollover, the proceeds of your 401(k) account will be sent directly to the IRA trustee rather than you. This saves you some money, because if the funds were sent to you, tax withholdings would be kept, and you may be subject to a penalty.

PICK YOUR INVESTMENTS

Once the money arrives in your new account, you may want to meet with your brokerage firm to decide how to invest your money. With an IRA, you usually have a good deal of flexibility with your investment options, so you’ll want to develop an investment strategy that supports your goals.

When you rollover your account, you may be tempted to use the assets to pay current debts. Keep in mind that by using retirement assets for current spending, you’ll not only jeopardize your retirement security, you’ll also be subject to tax withholding and (often very steep) penalties.