Almost all employers offer a 401k or similar plan. Many employers enable you to be eligible for the 401k from the first day and some will enroll you automatically. If do not leave stuck looking back at five different employers over the years behind you, there may be five distinct 401k accounts sitting out there. Let’s get this organized!
Once you leave an employer, the company can force you out of the 401k by sending you a check, but they can’t force you to continue to maintain the plan. Staying is no problem except that you create this trail behind you with one plan after another, each with relatively small balances. A 401k may not be a great place to leave your money, as the fees are typically higher than they would be in an IRA.
Follow this plan to obtain yourself organized.
1. Draw up a list of your past employers. The IRS designs 401ks such that you are generally not eligible until you turn 21, so you don’t begin to your list with your high school jobs. Anywhere you’ve worked since your 21st birthday should be on the list.
2. Call human resources. For company on the list, call human resources and ask if they can assist you in determining if there is a 401k balance being held on your behalf. If the company sent you a check for your balance, perhaps years ago, you may have forgotten. It is good to check to confirm that there isn’t money out there for you.
3. Gather the statements. Your employer should direct you to the company that manages the 401k. The company can change that from time to time so it may be not the same financial firm that handled it when you worked there. Using your social security number and birthdate, you can likely get the firm to provide you with a statement showing how much you take into the account. Gather all of the statements from all of your previous 401ks. If you contributed regularly over 15 years, you may find that the sum of all your accounts now equals a couple of years of your current income, depending upon how you invested the money.
4. Open an IRA. If you already get an IRA, you can skip this step. You will want open an account with a stock brokerage. Unless you have a lot and lots of money, I recommend a discount brokerage like Charles Schwab, Fidelity Investments or TD Ameritrade. Choosing one may be simply determining which one has the closest office. Or you can have it online.
5. Transfer the 401ks. Now that your new IRA is open, you’ll want to transfer all of the 401k assets to your IRA. Your broker can handle most of the work if you fill out a form—in person or online—providing them with the account details from the 401k statements you gathered.
6. Invest wisely. Inside the 401k, the company likely restricted your investments rather narrowly, forcing you to be invested no more than moderate risk in mutual funds. In your brokerage account you’ll have the full gamut of options, but you’ll want to remain fairly cautious, investing in five to seven separate no-load, commission free mutual funds with different strategies. Some should be stock funds and others should be bond funds. When you’re young, most should be stock funds; as you get older, more investments should go into bonds.
By following this strategy, you get the big benefit of having control of your savings and investments. You’d hate to forget about one of those obsolete accounts and miss out on what that value can cover during retirement. If you’re wise and thoughtful, you should be located in a position to reduce the fees you’re paying. Thereby increasing your potential returns. Best of all, you can sleep at night knowing where all of your money is sleeping.
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