You: What should I do with my 401(k) money when I switch jobs?

Generally, you have four options for your 401(k) money whenever you leave your job:

  1. Leave it there.
  2. Roll it over into your new company’s 401(k) plan.
  3. Roll it over into your IRA.
  4. Take the money.

Choosing number 4 will never be the right move (the reasons why are another post for another day). Selecting options one, two, or three are all acceptable.

You: Okay, but which one of the three should I do?

Gary: Definitely number three, a rollover into an IRA.

You: Why?

Gary: So I can invest it for you.

You: So only rolling over the money into an IRA allows me to invest?

Gary: Let’s just say it’s the only way that I’ll be able to work with you. And it’s obvious you need my help.

You: Is this true?

Part of it is. A private commission-based financial advisor is unable to make money telling you how to invest money in your 401(k) account, because the money is held in a workplace retirement account. The advisor can’t access the money.

You: So what’s not true about what Gary said?

Two things. First, you don’t need his help to do a rollover.

You: But I’ve never rolled over a 401(k) before!

At one point you hadn’t drank beer, kissed a significant other, rode a bicycle, snowboarded, yet now all these things are second nature. Thanks to your financial education, you are now aware of the easiest way to get help doing a roll-over.

You: I am? Where can I get this help?

Any of the various brokerage houses you can open an IRA with, such as Vanguard, Schwab, and Fidelity will help you. They’ll help you with the paperwork for no extra charge.

You: For real?

Absolutely. The more money you successfully move over into your IRA, the more money you can invest with them and the more money they stand to make. So they’re happy to help.

You: What’s the second reason Gary is wrong?

There are more than two reasons Gary is wrong.

You: I mean about the whole rollover thing.

Okay. Second, a rollover to either an IRA or to another 401(k) plan may be appropriate.

You: Which one should I do?

Personally, I prefer to roll over the money into an IRA as it gives you all the flexibility you’ll need when it comes to investing options. Others prefer moving the money inside the new employer’s 401(k) account. You won’t go wrong choosing either option. The most important thing to know is that you can do a rollover and that you should never just “take the money out.”

You: The moral of the story?

Whenever you leave your job, either roll over your 401(k) plan into your new employer’s 401(k) plan or roll it over into an IRA. Doing so helps simplify your life because it gives you one less account to keep track of (if you leave it behind.)

Simpler is better because simpler gets done. Move your money where you know you will keep your eye on it. Invest an hour of time to roll over your 401(k) the right way when you leave your employer, instead of spending days trying to figure it out a few years later. Now that’s living Beyond Paycheck to Paycheck.

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