Each year, millions of Americans retire or change jobs. In fact, due to the tight labor market in 2022, Americans have more leverage than in the past with approximately 65% of workers currently looking for alternative opportunities. Regardless of the reason for your employment transition, do not forget about your old employer-sponsored 401(k)’s.
According to a recent study, approximately 24 million plans are left behind, or forgotten about, each year in old 401(k) plans totaling approximately $1.35 trillion. While many participants oversee these old accounts well, many lose sight of these accounts potentially costing them thousands in long-term retirement savings. Below is why rolling these assets over to either a new 401(k) plan or an Individual Retirement Account (IRA) may be right for you.
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More Investment Options
While most 401(k) plans contain limited investment options, rolling your 401(k) to an Individual Retirement Account (IRA) may be right for you. Once inside a Rollover IRA, your options dramatically increase to include individual stock/bond securities and mutual funds/exchange-traded funds. Typically, 401(k) plans are particularly limited in their access to individual stock securities and fixed income/bond market options. In fairness, 401(k) plan investment options are often intentionally limited to reduce confusion for the public, but the pros of more investment options often outweigh the cons.
Clarity of Strategy
Another advantage of rolling over your 401(k) is ensuring clarity of strategy. If you lose visibility of an old plan, chances are you will not have a great idea of how the money is invested and how those assets complement other areas of your investment portfolio. In fact, you may be making changes in your portfolio that are unnecessary based on your positioning in these old plans.
Recommendation: Understanding what you own and why you own certain assets is important to understanding your portfolio performance and then you can make necessary adjustments along the way.
Monitoring of Performance Relative to Assumptions
One of the most important aspects of long-term financial planning is the continuous monitoring of your performance vs. your investment return assumptions. If you have limited visibility over what you own, and its performance relative to your return assumptions, it is almost impossible to ensure you are on the right long-term glide path in terms of spending and savings relative to your financial goals. With proper oversight, you can move forward with confidence knowing your portfolio positioning, annual savings, and short-term spending plans are appropriate to meet your long-term goals.
To locate old/lost 401(k) plans:
1) Search for old account statements with custodial information.
2) Contact your previous employer/HR department.
3) Search databases including, but not limited to, National Registry of Unclaimed Retirement Benefits, U.S. Department of Labor, or Free ERISA.
Opportunities such as a new job position or retirement are an exciting step in your life but do not forget about your 401(k) with your previous employer. If you have any questions about your options, contact a Financial Advisor for assistance.
Marshall Clay CFP, J.D., is a Partner and Senior Advisor at The Welch Group, LLC, specializing in providing Fee-Only investment management and financial advice to families throughout the United States. Marshall is a graduate of the United States Military Academy in West Point, New York, the Cumberland School of Law in Birmingham, Alabama, and is a CERTIFIED FINANCIAL PLANNER™. In addition, Marshall is a frequent guest on local television stations as an expert on various financial planning matters.
IMPORTANT DISCLOSURE INFORMATION
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