I’m a Financial Expert: 5 Reasons To Combine Your 401(k) Accounts

Gone are the days when a person got hired by a company and spent their entire career there. Instead, people are moving from company to company for many different reasons. 

For some, it’s because they’re looking for a change in career path. For others, wage stagnation is causing them to look elsewhere for more money. No matter the reason, employees are leaving jobs and their 401(k) accounts behind.

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A 2023 study by Capitalize found that 1 in 5 employees left a 401(k) behind when they left a job. There’s now more than $1.65 trillion worth of assets sitting in left-behind accounts.

While having multiple 401(k) accounts open may not be a big deal to some, there are benefits to combining them.

Reasons You May Want To Combine 401(k) Accounts

The average American worker is likely to have nearly a dozen jobs during their lifetime, which could mean several 401(k) accounts. Here are some reasons to consider combining those accounts.

Lower Fees

If you have multiple 401(k) accounts open, you’re likely paying fees on each one. While some accounts might charge a percentage of your assets, others charge a flat monthly or yearly maintenance fee.

These small fees can add up quickly if three or four accounts are open.

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Less To Monitor

Managing several different investment accounts can be difficult and time-consuming. With multiple accounts, you’ll need to continually monitor each. 

“Financial management does not need to be harder than it is,” said Jason Dall’Acqua, CFP, founder of Crest Wealth Advisors. “Having multiple 401(k) accounts through various custodians and with different login credentials and investments to track only makes the administration, monitoring and adjusting more burdensome.” 

Combining your accounts also allows you to get a better picture of your savings, according to Dall’Acqua. “Consolidating old 401(k) accounts allows for more of your money to be viewed in one place and more easily managed. It also provides a clearer picture about where you are in reaching your retirement savings goals,” he said.

Easier for Beneficiaries

When you die, your retirement accounts will be passed down to your beneficiaries. That undoubtedly will be a difficult time for your loved ones. Having multiple 401(k) accounts open will increase the work and stress they’ll endure as they try to get your affairs in order. So not only is a single 401(k) account going to be easier for you, but it’s also going to be easier for your loved ones.

Aligned Investment Strategy

Our financial priorities change as we progress through life. When you’re young and single, your risk tolerance and goals will be much different from your tolerance and goals when you’re further along in your career. Keeping old 401(k) accounts open could cause your overall portfolio to be inefficient at achieving your current goals.

“If that money is not managed and invested in alignment with a person’s entire financial strategy, then they could be taking too little risk, missing out on growth opportunity,” Dall’Acqua said. “Or they could be taking too much risk, putting their money in jeopardy when they are close to needing it in retirement.” 

You Could Forget About the Account Altogether

Things can happen as the years go on, and you may lose track of accounts altogether. This can be even worse if your old employers change their plan administrator. The last thing you want is for your old accounts to be lost entirely. 

How To Consolidate Accounts

If you decide to combine all your 401(k) accounts, the ideal way to handle everything is with a direct transfer. Here’s what you need to do. 

  1. Start by listing each account. You can usually do everything online or by calling the plan administrator.
  2. Next, determine where you’ll want to move each account. You can move them to your current 401(k) or roll them into an IRA.
  3. Log in to your old 401(k) account or call the plan administrator. Let the administrator know you’d like to roll over your account, and then ask for a check to be made out to your new plan provider. 
  4. Ideally, the administrator will send the check directly, but if it’s sent to you, you’ll need to forward it on so the funds can be added to your account. But be sure to deposit the money back into a 401(k) or another tax-advantaged retirement account within the given time frame to avoid taxes.

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This article originally appeared on GOBankingRates.com: I’m a Financial Expert: 5 Reasons To Combine Your 401(k) Accounts

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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