In their working life, the typical baby boomer has held 12 jobs from age 18 to 54, according to a U.S. Bureau of Labor Statistics study. Those 12 jobs translate to potentially a dozen 401(k) retirement accounts. I can speak from personal experience—I still maintain multiple 401(k) accounts as part of my portfolio.
You may be wondering: What is a career-minded individual to do with all of these accounts? Is it possible to consolidate multiple 401(k) accounts? The short answer is yes, it’s possible to combine various 401(k) accounts. While this choice is not necessarily for everyone, as each individual’s financial situation is unique, consolidating your 401(k) accounts may offer you a better, more comprehensive picture of your entire retirement portfolio.
Advantages of Combining Multiple 401(k) Accounts
Combining multiple 401(k) accounts offers several advantages. According to financial services provider Charles Schwab, benefits include:
- reducing fees charged by various 401(k) plan managers;
- providing a better overview of your complete retirement portfolio;
- simplifying your finances; and
- making it easier to prepare your tax return.
As MarketWatch explains, managing one account is almost always more practical than managing multiple accounts. Many people “will not actively monitor their accounts, regularly review them, or effectively build a portfolio. When retirement assets are merged, however, they can also consolidate future savings from other retirement plans.” If you are the type of person who may prefer a less hands-on approach to your retirement portfolio, combining accounts may be an option to consider.
How to Combine Multiple 401(k) Accounts
The most straightforward way to combine multiple 401(k) accounts is to roll several accounts into one active account. Specifically, you may roll money from accounts that no longer receive contributions (accounts opened at previous employers) into an active 401(k) with a current employer.
Keep in mind that if the new 401(k) is a Roth 401(k), you’re limited to rolling the old accounts into an existing Roth 401(k) or existing Roth IRA.
Another option is to roll all of your old 401(k) accounts into a traditional IRA. While this reduces the hassle of tracking several accounts, if you are still working, you may still need to monitor your existing 401(k) with your current employer.
Rolling over a portion of your 401(k) accounts into a precious metals IRA is another option. This type of IRA (which can be either a traditional or Roth IRA) offers the ability to hold gold and silver struck by the United States Mint, as well as other alternative assets like real estate. Precious metals IRAs can provide account holders with increased opportunities for portfolio diversification and control over their asset mix, allowing them to find the perfect balance of risk exposure between their accounts.
Of course, you still have the option to maintain the status quo and keep any 401(k) accounts from previous employers where they are. However, funds cannot be added to those old accounts, which may make it more challenging to streamline your complete portfolio overview.
How to Avoid 401(k) Rollover Penalties
If you decide to cash out a 401(k) after leaving an employer instead of rolling it into a new account, you may face taxes and potential fees for early withdrawal. To help avoid these penalties, here are a few options you may want to consider:
- Leave the money in the original 401(k) opened with the previous employer. You will not be charged early withdrawal taxes or fees, but you also will not be able to add money to the account.
- Directly roll over the original 401(k) into an IRA or an employer-sponsored 401(k) account with your current employer. A direct rollover, which does not involve withdrawing money from a 401(k), avoids taxes and fees.
An indirect rollover is subject to taxes and fees. When executing an indirect rollover, the account holder receives their 401(k) funds in the form of a check or direct deposit. The account holder is then responsible for depositing the money into an eligible retirement account. If this money is not deposited into an eligible account within 60 days of it being withdrawn, the account holder could be subject to tax consequences.
Request a complimentary Gold IRA Information Kit and call U.S. Money Reserve to learn more about the combined benefits of precious metals and self-directed IRAs.