The Miser’s 3 Things:

  1. Don’t be tempted to let your old 401(k) account sit there — or worse, withdraw the money.
  2. Ask your new employer’s HR department for information on how to do a rollover.
  3. In some cases, you’ll have to call your old 401(k) plan provider. But now, some let you request a rollover without picking up the phone.

A 401(k) rollover is enough to make your head hurt.

There are documents to read. An online account to to sign up for. Maybe even a dreaded phone call with the customer service center for your old company’s 401(k) plan.

The Miser recently changed jobs, and is now working for his fourth company before the age of 30. That makes him something of a rollover expert.

The task can seem daunting, but in reality it’s becoming increasingly simple. Plus, it’s important. Doing it will save you time, money, or both over the long run.

What’s a rollover?

When you leave one company and join another, you also join that new company’s 401(k) plan – assuming one is offered. Meanwhile, you can’t make any more contributions to your previous company’s plan.

Your old account doesn’t quite sit dormant. The contributions you’ve made continue to ride the market. So too do your previous employer’s matching contributions, as long as you’re vested.

Vested = you worked at that company long enough to retain the employer’s contributions once you left. (At many companies, you’re 100 percent vested in the employer’s contributions after two or three years of working there. This information is usually contained in the company’s 401(k) plan documents, which you can usually find posted somewhere on your online account portal.)

Even though your old account doesn’t sit dormant, you can’t do anything to make it grow.

For a variety of reasons, it’s best to move that money to your new employer’s 401(k) plan.

The process of merging your old account into the new account is called a rollover.

Why bother?

It might be tempting to let your old account sit there, especially after I described a minor horror story earlier in this post.

Don’t. Do. It.

There are a lot of reasons a rollover is beneficial. Among them:

  • Convenience: When you want to check on your money, it’s nice to be checking on only one account instead of two (or more, if you’ve changed employers multiple times.
  • Forgetfulness: You might forget your password to the old account. Or you might forget about you even had the account.
  • Penalties: If your old 401(k) doesn’t have much money in it, you could be charged a penalty for not rolling it over. Again, the plan documents will spell this out.
  • Temptation: If you don’t immediately roll the money over, you might be tempted to withdraw it. In technical terms, this is called “taking a distribution.” Not only will you pay income taxes on this money but, if you haven’t hit retirement age yet (and you probably haven’t, since you’re reading a millennial personal finance blog) you’ll pay an early withdrawal penalty. Bad news.

How do I do a rollover?

When you start your new job, you’ll have a conversation with HR about your benefits. You’ll probably get a booklet with details on the company’s 401(k) plan.

If you’re anything like The Miser, you already know some of what’s inside – like the employer’s matching contribution rate – because you’ve used that information to help decide whether to accept the job.

Somewhere in the booklet, it will list the website to sign up for the 401(k) plan’s online portal.

Once you sign up, there will be information online about how to do a rollover. This includes how your old 401(k) plan should write out the check to your new 401(k) plan.

For The Miser’s first three job changes, the next step was to call my old 401(k) provider – think Vanguard, Fidelity, Wells Fargo, etc. – providing some personal information, telling them where the money was going and how to make out the check.

An important note: Even though the money’s going to your new 401(k) plan provider, they will likely send the check to you.

Don’t try to cash the check. Send it straight to your new 401(k) plan provider.

For my most recent move, there was plenty of grumbling about having to call a customer service representative. But then, on Vanguard’s 401(k) portal, The Miser saw it could be done online.

Great! This will save 10 minutes on the phone!

Vanguard allowed me to type in where the money’s going, how much I wanted to go there (all of it), and within a few business days, boom!, it magically appeared in my new account.

One final word about Roth IRAs

Some companies’ 401(k) plans allow you to make Roth IRA contributions in addition to regular 401(k) contributions.

First, some definitions:

401(k) = Pre-tax contributions. The money gets taken out of your paycheck and isn’t taxed. You’ll pay taxes when you retire and start taking distributions.

Roth IRA = After-tax contributions. You pay income taxes, get your paycheck, and then make investment contributions. The money isn’t taxed when you retire and start taking distributions.

As The Miser recently discovered, if your old company’s plan allowed Roth contributions but your new employer’s plan does not, you might not be able to roll over these specific contributions.

Luckily, the next step was painless enough.

When I was doing my rollover online, Vanguard separated the 401(k) money from the Roth money. As described above, I rolled over my entire 401(k) into the new employer’s plan.

Then, when it came to the Roth money, I rolled over that entire amount into a new Vanguard Roth IRA. You can even keep the money in the same target-date retirement fund, or whatever investment fund you’ve chosen.

No, it’ll no longer be as simple as having both investments in a single plan account. But as long as I make all future Roth contributions into this new Roth IRA, I’ll never have more than two retirement accounts to keep track of (my company 401(k) plan being the other).

Yes, rollovers might make the eyes glaze over.

But they’re relatively simple and let your money keep growing tax-free for decades to come.

Top photo from Pexels.com