If you’re under 40, chances are you’ve changed jobs at least three times — if not more. The statistics show that the average millennial will only stay at a job for 4.4 years on average. That means 2 to 3 jobs before they are 35.
Changing jobs can be great — higher pay, more benefits, etc. But what happens to your old 401(k)? You need to roll it over!
Along with all of the job changes, too many millennials are leaving their old 401(k)s just sitting around. I recently met a 38-year-old that had 4 different 401(k) accounts from his old jobs, and he just shrugged his shoulders at it. Considering the average millennial account balance hovers around the $20,000 mark, how can you just shrug your shoulders? That’s a lot of money!
If you’ve changed jobs, here’s what you need to do to roll over your 401(k), step by step.
Understand Your Old 401(k) Options
The first thing you need to do is to understand the options you have when it comes to your old 401(k). You can typically do three things:
- Roll it over to an IRA.
- Keep it at your existing company. This isn’t always an option, and some companies make you cash out your 401(k) if it is below a certain dollar amount.
- Transfer it to your new company’s 401(k) plan. Some companies do not let you transfer your old 401(k) into their plans.
As you can see, rolling over your 401(k) into an IRA is typically your best bet. There are more reasons than availability though.
First, moving your funds into an IRA gives you more flexibility about what to invest in. Typically, 401(k)s are very limited in their investment choices. With an IRA, you can invest in pretty much anything.
Second, most 401(k)s charge higher fees than having an IRA at a discount brokerage.
So, not only do you get a better selection, you pay less as well.
Open a Rollover IRA
Now, it’s time to actually open a Rollover IRA. Here’s our list of the best places to open a Rollover IRA.
I recommend TD Ameritrade to open up an account. Why? Because they have low costs ($0 commissions for stocks, ETFs, and options), and they are extremely helpful when it comes to this kind of stuff.
You can quickly open an account online here, and then just follow the steps. If you need help, you can simply just call them, and they can walk you through it. Also, I’ve put together a free video training series to show you how to do it as well.
Remember, the goal is to save money in fees, so make sure wherever you open a Rollover IRA, you do it at a cheap investing site or discount brokerage. You don’t want to be paying more than you have to.
Transfer the Balance
Once you open an account, the next step is to transfer over your old account. You can do this two ways. First, if you open an account through TD Ameritrade, they can handle most of it for you. Simply call them or go into their office and you can fill out a few forms for them to start the transfer.
The second way is to go through your old 401(k) plan and request a rollover. Some plans will send the money directly to your new account, others will send you a check and require you to deposit it into your new account.
This is very important: If you do get mailed a check, you must deposit it into your new Rollover IRA within 60 days! If you don’t deposit it within this time, the IRS will consider it a withdraw and you will have to pay taxes on the money!
Live Long and Prosper
Okay, now that you have this Rollover IRA, you can live long and prosper! But really, you can now use this one single account to roll over all of your old 401(k)s from every company you’ve worked at. It’s great to have everything consolidated in one place.
Robert Farrington is America’s Millennial Money Expert® and America’s Student Loan Debt Expert™, and the founder of The College Investor, a personal finance site dedicated to helping millennials escape student loan debt to start investing and building wealth for the future. You can learn more about him on the About Page, or on his personal site RobertFarrington.com.
He regularly writes about investing, student loan debt, and general personal finance topics geared towards anyone wanting to earn more, get out of debt, and start building wealth for the future.
He has been quoted in major publications including the New York Times, Washington Post, Fox, ABC, NBC, and more. He is also a regular contributor to Forbes.