Did you just change jobs?
Have a IRA Rollover or 401(k) you haven't moved yet from a previous employer?
I received a couple of calls in the past few days from my 401(k) clients. Thank you, by the way, it inspired this article! Both client were asking the same thing.
What should I do with my old 401(k) or a Rollover IRA from a previous employer?
So there are a few things you'll want to know. Each option has its benefits and limitations.
The waiting period to contribute does not apply to a rollover.
If you recently switched jobs, there may be a waiting period of up to a year before you can participate in your new employers 401(k) plan. That bites. You still can toss $5,000 into an IRA in the meantime. It's $6,000 if you are over 50. However, you don't have to wait to rollover an old 401(k) or IRA Rollover to the new plan. The year wait is for new contributions. Not for a rollover from a previous plan. Cool huh?
You don't have to do a rollover at all.
There is no rule that says you have to move your old plan to the new one. In fact, there are advantages not to do so. Like unlimited investment choices in an IRA. Keeping these funds separate will allow you to implement totally different types of investments too. You can also hire a full time financial professional who will provide advice on your investments and entire financial plan.
Advantages of combining your funds.
One overlooked advantage of keeping, or combining funds in your 401(k), is that it is protected from creditors. Yep, they can't touch it. Second, all your money is consolidated. Everything in one tidy place. If you tend to get overwhelmed by the investment universe, this will be a good option. Few plans offer over 30 different choices making it easier to pick your poison.
If your IRA statement says IRA Rollover then it can be moved.
One of my clients asked me if he could move the IRA to the new employers 401(k) plan. I asked him if it was a Traditional IRA or a Rollover IRA. Even though you can move your 401(k) money after you leave to either one, only the Rollover IRA allows you to put it back into a 401(k). So if you are leaving the workforce forever, it really doesn't matter. But if not, you may want to leave the option open.
Hope this helps give you some ideas about your choices. If you still aren't sure what to do, it might be time to contact a financial advisor and do a little planning.
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