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NEW YEAR, NEW JOB -- HERE’S WHAT TO DO WITH YOUR 401(K)

FOR EMPLOYEES WHO’VE RECENTLY STARTED A NEW JOB, THE ISSUE OF WHAT TO DO WITH A
401(K) FROM A PREVIOUS EMPLOYER CAN BE INTIMIDATING, BUT IT DOESN'T HAVE TO BE.

By Faron Daugs | Januar 10, 2022 at 04:05 PM

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Job turnover is at a historic high, with 4.5 million Americans quitting their
jobs in late 2021, according to ABC News. For employees who’ve recently started
a new role, the question of what to do with your 401(k) from a previous employer
can feel intimidating—but managing your retirement investments doesn’t need to
be complicated.

Let’s break down what smart management of your retirement funds looks like, and
what to do with that old 401(k) now that you’re in a new role.






THE BASICS: MANAGING YOUR 401(K) LIKE A PRO

Most 401(k) plans have similar features, but they aren’t identical. Take the
time to carefully compare your new employer’s plan with your previous employer’s
plan. Consider the following:


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 * Which plan offers more unique investment options that may allow for greater
   diversification of your portfolio?
 * How do the two plans’ fee structures compare?
 * Do the plans offer other features, such as loan provisions or early
   withdrawals? How important are those features to you?
 * What are the tax consequences related to the types of contributions into your
   old plan if you were to roll them into your new plan?

Whether you decide to keep your old plan or roll those funds into your new plan,
at minimum I always recommend contributing to your 401(k) in the amount that
your employer will match. This match is “free money” to you, which is a great
benefit.





Beyond this minimum contribution, assess how much money you feel comfortable
taking out of your monthly cash flow to put away for the long term. While it’s
ideal to maximize your 401(k) contributions to the IRS limits every year, that
may not leave you with realistic take-home pay. Don’t over-contribute to your
401(k) at the risk of putting expenses on credit cards or incurring debts—but if
you find that you have a reasonable discretionary income at the end of each
month, consider allocating a higher percentage to your 401(k). And make sure to
regularly increase your contribution as you receive raises and/or bonuses.


WHEN TO KEEP YOUR OLD 401(K)

In some cases, it may be wise to keep a 401(k) from a previous employer active;
rather, than rolling those funds into your new employer’s 401(k) program.
Consider this strategy if:

 * You intend to resume your employment with that former employer at some point
   in the future.
 * You have more attractive investment options at your old 401(k) that are no
   longer available to you at your new company.
 * The overall cost and service of your old 401(k) is more beneficial than that
   of your new plan.
 * Your old plan offered a Roth 401(k) option that is not available with your
   new 401(k) plan.
 * You own company stock in your previous employer’s plan that isn’t
   transferable to your new plan.


WHEN TO TRANSFER FUNDS FROM YOUR OLD 401(K) TO A NEW ONE

In many cases, consolidating your 401(k) plans is the right move simply because
it makes it much easier to keep track of your investment portfolio.





A lesser-known reason to consolidate 401(k) plans is that it may give you more
options in terms of loan privileges. For example, if you’re purchasing a home
and would like to take the maximum loan available for your down payment, you may
need a greater value in your 401(k) plan to reach that maximum. You can
typically only take loans from a plan that you are making active contributions
to, so in this case consolidating your plans could make the most sense.


WHEN TO CONSIDER WORKING WITH A FINANCIAL ADVISOR VS. USING AN EMPLOYER 401(K)

A third option to consider: does it make more sense to transfer management of
your retirement funds to a financial advisor? If your employer doesn’t offer a
strong 401(k) contribution match, or if the fees associated with your employer
investments are high, it may be time to seek outside help.

Financial advisors also offer assistance that may not come with your employer
retirement account. What kind of access do you have to assistance in determining
the best mix of investments based on your risk tolerance with your current
401(k) plan administrator? Is that assistance enough to make you comfortable
with your investment choices?

It’s also important to ask yourself – are you keeping your investments with your
employer simply because it’s convenient, at the expense of growth opportunities?
An advisor may be able to help you make more advantageous investment decisions,
without sacrificing convenience or level of service.

Understanding the risks and rewards of your investment options can feel
overwhelming, but dedicating some time and focus to your retirement planning
will pay off in spades in the long run. Take it one step at a time, and seek
advice if you’re becoming uncomfortable with the fluctuation of your investment
portfolio. Always keep an eye on and perspective about the long-term potential
versus short term fluctuations.

Faron Daugs, CFP, is the founder & CEO of Harrison Wallace Financial Group.

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