Consolidating 401 k accounts

28 Apr

The self-employed and others might only be able to roll over their 401(k)s into Individual Retirement Accounts, or IRAs.In most cases, there is no penalty for keeping an old 401(k).These are the primary options for streamlining your retirement accounts: One thing you should never do is cash out, since "you'll pay a 10% penalty plus taxes on the money you take out," explains financial planner Sophia Bera.For each of these options, start by contacting the custodian — or holder — of the account to see what items are needed to expedite a rollover, says Rafal.Mecca & Associates in Hoffman Estates, Illinois."If you're getting statements from Vanguard, Merrill Lynch and everyone else and you come home tired from work, you're not even going to look at the paperwork."Consolidating your retirement funds into a single account not only makes it easier to manage your asset allocation, says Mecca, but it can also help you avoid some costly mistakes."You may have duplication in your portfolio where you own two very similar funds with regards to investment philosophy and objectives," he says."The left hand doesn't know what the right hand is doing."Indeed, investors with multiple 401(k) plans run the risk of being overweight in one or two individual stocks or sectors within their portfolios.In order to combine separate 401(k) accounts, the investor must currently be enrolled in one, either through her employer or by holding a self-employed 401(k).

I would start by talking to the IRA trustee they are likely to have seen it all, and can guide you through the process. Some rollover IRA trustees pass fees onto their participants. I've done several direct rollovers from 401(k) to IRA - and once I was charged a fee (by the 401(k) company)."The average 40-year-old may have changed jobs three to four times in their working career and could potentially have 401(k) accounts at each firm," Rafal said."One of the benefits of consolidating your old 401(k) accounts is that it provides more flexibility to choose the investment strategy that is right for your goals," he said.But 401(k) plan owners have several options if they want more control of their retirement fund.In some cases, combining one 401(k) plan into another, called a "rollover," is an option.