Organize and rebalance your accounts
Now that you’ve found your old 401k plans, it’s time for a review. After years of neglect, your forgotten retirement accounts may not be properly balanced. This means there may be too much emphasis on one type of investment, or not enough on another.
If you plan to keep the IRA or company plan open, you may want to consider diversification, so there’s the right amount in stocks, bonds, U.S. investments or international exposure that’s appropriate for your investment goals and risk tolerance.
You’ll need to check each account individually at first. However, if you can list them all in one place, you’ll see how your combined investment diversification stands up. An online tracking service can continue to monitor your accounts, possibly flagging you if you need to consider rebalancing again. (Please remember, application of asset allocation and diversification concepts do not assure a profit or protect against loss in a declining market. It is possible to lose money by investing in securities.)
Online tracking services can’t do the rebalancing for you, you’ll have to go to each individual account to manage the rebalancing. And if the diversification seems off but it’s not time for you to rebalance, you’ll have to look at each individual account to determine which one may be out of balance the most.
Decide if you should roll over
While you might want to roll over your company retirement accounts into one IRA, this is not always the best option. Often, if you’ve worked at larger firms, you will have the opportunity to keep your funds in the company retirement plan without penalty, even after you’ve left. And the fees could be lower Opens in new window, because so many people within the company opt into the plan.
In these situations, it could be advantageous to keep the funds where they are, at least in the short term. But as a word of warning, you likely won’t be able to add more money to the plan, and you won’t have as many options for investing the money as you could in an IRA.
There are times where a company will automatically roll over your 401(k) into an IRA, particularly if you don’t have a large enough amount in the account (typically, this will mean having less than $5,000) at the time of your departure. The company may not choose the best IRA for your needs, so you may want to select a better one.
You can also typically roll the money over into a new company’s retirement plan.
Whatever you decide to do, please note that Prudential does not provide tax advice and you should consult with a qualified professional who can explain each step of the process. Incorrectly rolling over retirement funds can create a tax nightmare. If you cash out your company retirement plan, you’ll likely need to pay taxes on the total amount, plus potentially pay a 10% early withdrawal fee.
This could also increase your current income tax rate because it’s taxed as regular income.