Making the Most of Your Old 401(k)s?

08/02/2010 Share 0 comments

Financial planner Rick Brooks increasingly finds himself tangling with what he and his colleagues call "yapping dogs." Not the canine variety, but the 401(k) type—those pesky retirement accounts many people leave behind in their ex-employers' 401(k) plans when they change jobs.

These old 401(k) accounts can be minor annoyances, increasing a person's financial paperwork and making it tougher to view one's portfolio as a whole. Others are downright dangerous, taking a big bite out of overall investment returns with their high costs.

All told, there are 15 million yapping-dog accounts in the U.S. retirement system, according to David Wray, head of the Profit Sharing/401k Council of America, an association of companies that sponsor retirement plans. And millions more are in the making, he says, as more people enroll—or are automatically enrolled—in their employers' 401(k) plans.

Moreover, the bulk of these accounts aren't Chihuahuas. They're Great Danes. In a study by human-resources consultants Hewitt Associates Inc., only 3% of departing employees with accounts of less than $1,000 left their money in their former employers' plans, while nearly half of those with balances of $100,000 or more did so. That's partly because many companies don't allow departing employees with very small accounts to stay in their plans.

While leaving money in an old 401(k) plan is sometimes a smart move, experts say the primary reason people don't take these accounts with them when they change jobs is inertia. There also is confusion about the options, or—to push the canine metaphors one last time—whether to walk, stay or roll over.

The more complex decision is whether to stay in the current plan or roll the money over into either a new employer's plan or an individual retirement account. While new employers aren't required to accept such rollovers, most do. Here are key considerations:

• Cost

• Investment Choice

• Account access

• Roth option

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Tags: Retirement, 401K, IRA