Successful professionals, lawyers in particular, frequently move from firm to firm or see their current firm merged with another. In these transitions, old retirement accounts are often left at the prior firm for convenience. If this sounds familiar, consider that you could be paying unnecessary expenses or taking portfolio risks that no longer line up with your goals.
We recommend consolidating your old 401k accounts into your current 401k, (if your plan allows) or into an individual retirement account (IRA). Below are some of the top reasons to consolidate your old retirement accounts:
- Reduce expenses: 401k accounts can be instrumental in saving for retirement, but they may also include administrative expenses and more expensive share classes than are available in IRA accounts. Don’t pay unnecessary fees.
- Investment options: 401k investors are limited to the options provided within their firm’s plan. Depending on the size of the plan and decisions out of their control, investment options may be limited to a few choices. An IRA account at a custodian such as Charles Schwab, Fidelity, or Vanguard will open up thousands of investment options not previously available.
- Stock market risk: It’s important to understand the stock market risk within all of your investment accounts. Often times, old 401k accounts that were set up at a younger age are highly concentrated in growth or stock accounts. A market correction later in your career may have a significant impact on your retirement.
- Out-of-date beneficiaries: Have you been divorced or have your goals changed since you worked for your old firm? Upon your passing, the old retirement plan is required to distribute the assets based on the beneficiary form on file. Leaving assets at old firms may cause an undesirable distribution at death.
- Lost assets: Does your spouse or your heirs know about this account? If you have trouble listing all of your accounts then it’s likely your family isn’t aware of them! Consolidating your assets will make sure they are properly distributed upon your passing.
To know what you have and where it is, start by completing a Net Worth Statement. To learn how, read: The Most Valuable Piece of Paper Every Senior Partner Should Have.
There is very little downside to consolidating old 401k accounts. Make sure you know where your assets are, how they’re invested, and who receives the assets upon your passing. Simpler is better!