Gone are the days when people were employed by a company and spent their entire career there. Instead, people move from company to company for a variety of reasons.
Some say it's because they're looking for a change in career path. Stagnant wages have caused some to look elsewhere for more money. For whatever reason, employees quit their jobs and leave their 401(k) accounts behind.
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A 2023 study by Capitalize found that one in five employees leaves a 401(k) behind when they retire. Currently, more than $1.65 trillion is sitting in abandoned accounts.
Opening multiple 401(k) accounts may not be a big deal for some people, but there are benefits to combining them.
Why consolidate 401(k) accounts?
The average American worker may hold nearly a dozen jobs in their lifetime, which can mean several 401(k) accounts. Here are some reasons to consider merging these accounts.
Reduced fees
If you have multiple 401(k) accounts, you may be paying fees on each one. Some accounts may charge a percentage of your assets, while others charge a fixed monthly or annual maintenance fee.
If you have three or four accounts opened, these small fees can add up quickly.
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Fewer things to monitor
Managing multiple different investment accounts can be difficult and time-consuming. If you have multiple accounts, you will need to continuously monitor each one.
“Managing your finances doesn't have to be any more difficult than it already is,” said Jason Dallaqua, CFP and founder of Crest Wealth Advisors. “Having multiple 401(k) accounts through different administrators, with different login credentials and investments to track, only adds to the administrative, monitoring, and reconciliation burden.”
Dall'Acqua says merging your accounts will give you a more accurate picture of your savings. “Consolidating old 401(k) accounts allows him to see more of his funds in one place, making them easier to manage. It also puts him in a better position to reach his retirement savings goals.” I see it clearly,” he said.
easier for beneficiaries
When you die, your retirement account passes to your beneficiaries. It will definitely be a difficult time for your loved ones. Having multiple 401(k) accounts open increases work and stress when trying to organize your affairs. So a single 401(k) account not only makes it easier for you, it also makes it easier for your loved ones.
Tailored investment strategy
Our financial priorities change as we progress through life. Your risk tolerance and goals when you're young and single are very different from your tolerances and goals when you're further along in your career. Leaving an old 401(k) account open can make your entire portfolio inefficient at meeting your current goals.
“If that money is not managed and invested in line with a person's overall financial strategy, they may be taking too little risk and missing out on growth opportunities,” Dallaqua said. “Or you may be taking too many risks, putting your money at risk when you're likely to need it in retirement.”
You may completely forget about your account
As the years go by, something can happen and you can no longer track your account completely. This can be made even worse if your previous employer changes plan administrators. The last thing you want is to lose your old account forever.
How to merge accounts
If you want to combine all your 401(k) accounts, the ideal method is to handle them all with direct transfers. Here's what you need to do:
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First, list each account. You can usually do everything online or by calling your plan administrator.
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Next, decide where to move each account. You can move these into your current 401(k) or roll them into an IRA.
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Log into your old 401(k) account or call your plan administrator. Tell your administrator that you want to roll over your account and have them issue a check to your new plan provider.
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Ideally, your administrator will send you the check directly, but if the check is sent to you, you'll need to forward the check so the funds can be added to your account. However, be sure to deposit the funds into a 401(k) or other tax-advantaged retirement account within the specified time period to avoid taxes.
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This article originally appeared on GOBankingRates.com: I'm a Financial Expert: 5 Reasons to Combine 401(k) Accounts
