The American workforce has changed the last few years. With or without the help of the work from home generation.
I can remember my grandfathers. And then my father. They found jobs early in their adult working career. And stuck with the same job at the same company all the way to retirement.
I have two kids in their mid-20’s. Both have already changed jobs and companies many times. From what they tell me, changing jobs is the norm. For all professionals their age.
My kids and their college and co-worker friends. All have come to me with the same “what do I do with my old 401(k)?” question. Some more than once.
It is obvious to me. Young workers need a logical, disciplined, and organized strategy. To best manage their old 401(k)’s. And the 401(k) they take part in now.
Based on my 39 years of investment advice experience. I have seen every possible mistake individual 401(k) participants have made with their old 401(k)’s. Here are three ways to manage your old 401(k) when you switch jobs.
1. Leave It in Your Old 401(k) Plan
This option falls into the category. How most individual 401(k) participants manage their largest retirement assets. The “set-it-and-forget-it” investment management strategy.
If your old 401(k) is a good one, go ahead and leave your 401(k) account balance there. But how do you know?
An independent, third-party fiduciary analysis of your old 401(k) menu is the answer. The only way to know for sure if you are better off leaving your old 401(k) where it began.
This is an especially good option if your 401(k) mutual funds have done well in your old plan. Your old 401(k) mutual fund menu may be terrible. You could be losing out on better returns by not moving your money into your new 401(k) plan.
2. Roll It Over To Your New Employer’s 401(k) Plan
The advantage of this option is that all your 401(k) money will be in the same place. That makes it much easier to watch.
Again, independent analysis of your current 401(k) menu solves a problem. That is the only way to identify the best mutual funds to own. At the same time keeping your annual mutual fund costs and fees to a minimum.
3. Roll Your Old 401(k) to an IRA
This is a good choice for those who like to take an active, hands-on approach with their investments. IRAs give you more options than 401(k)s because you can choose your own mutual funds. And choose to own individual stocks or ETF’s (exchange trade funds).
An IRA might be particularly attractive if any job change is in your future. The earlier you are in your working career, the more likely an IRA would be a good option for your old 401(k).
Realize there are potential downsides to each of these options. It all depends on your investment goals. And your interest in working with a fiduciary investment advisor along the road to retirement.
I have spent the last several years trying to figure out the best way to share my 401(k) advice content. I have tried Twitter, Facebook, company web site, and LinkedIn Groups. I now realize nothing beats a well-crafted newsletter delivered to your inbox once a week.
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