Should I Roll Over My Old 401(k) Accounts?

Dear Kristin,

I have 401(k)s with two different companies from different jobs. I have one rollover IRA from when I moved a 401(k) from another job. Is it OK to have all these different retirement accounts? Or should I combine them? And if so, which accounts do I move into which?

Sincerely,

CeCe

Dear CeCe,

Many workers switched jobs in 2021 and 2022, so I’m sure there are a lot of other people out there also wondering what they’re supposed to do with retirement accounts from previous employers. Is it OK to have all these different accounts? Yes. The bigger question to ask is: do you want to have all these different retirement accounts? 

When you leave an employer, your retirement account is usually yours to keep. That means you can typically keep the funds in the account until you decide what to do with the account. You won’t be able to contribute money to the 401(k) plan after leaving that employer, though, which limits how much you can manage and grow the funds. You may also lose some of the money in the account if your employer made any contributions (usually through a “match”) and you leave before being vested in the account. You do, however, always get to keep any money you contributed.

So, if you have a sizable amount of money in a previous employer’s 401(k) account, it’s perfectly fine to leave the money there. You don’t say how old you are, but if you are fairly young, chances are you might amass several retirement accounts through different employers by the time you reach retirement age. If you think you’ll remember that you have all of these accounts, and are fine managing them, you don’t have to roll over any funds if you don’t want to.

Personally, I’m not one of those people. Managing that many retirement accounts is likely more hassle than it’s worth. So, rolling over your accounts into one makes the most sense to me. You’ll only have to manage one account, and it’ll also make it easier to manage all your retirement investments.

So which of the two 401(k) accounts should you roll over? If one account is provided by your current employer, you can roll over the old 401(k) into your current employer’s 401(k). But, if both 401(k)s are from previous employers, you really have just two options: roll them both into an individual retirement account (IRA) or your current employer-sponsored account, if that is allowed by the plan.

You say you already have an IRA with funds from a previous rollover. So why not roll over the old 401(k)s into that IRA account? You can then continue contributing to the IRA—even if you have a 401(k) or another type of retirement plan with a current employer—to really set yourself up for retirement. Just be mindful of any tax implications, such as if your rollover IRA is a Roth IRA.

So which strategy is best? That depends on you. If you roll over your funds into a Roth IRA, you will have to pay taxes on that money. But if your IRA is a traditional IRA, you may be able to complete a direct rollover without tax consequences (though this must be done within 60 days of withdrawing the funds from the 401(k) account). What’s more, rolling the money directly into a traditional IRA means you won’t have to pay taxes on it until you withdraw the funds. You may also be able to directly roll the funds over into your current 401(k) account to keep saving for retirement.

Good luck!

-Kristin

If you have questions about money, Kristin is here to help. Submit an anonymous question and she may answer it in a future column.

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