Should I Consolidate Several 401(k) Plans?

Changing employers can scatter your retirement savings across multiple plans.
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After several job changes up the corporate ladder, you've left an impressive number of 401(k) plans in your wake. Whether you should consolidate your scattered retirement plans depends on your personal preferences as well as the benefits provided and fees charged by your previous employers' 401(k) plans.

Reasons to Consolidate

With each 401(k) plan comes extra paperwork: annual statements, beneficiary designations, and so on. When you consolidate all of your 401(k) plans into one, you simplify your life down to just one set of paperwork. This can make your investing strategy much easier to implement because you can have all your retirement funds in one place and you can keep better track of your overall portfolio. In addition, you may be able to take advantage of lower fees if you have just one large 401(k) account rather than several smaller accounts.

Don't Consolidate Employer Stock

The biggest incentive to keeping separate 401(k) plans is for the benefit of any employer stock you hold in that company's plan. Employer stock receives special treatment when you distribute it from the plan: the amount you originally paid for the stock is considered ordinary income when you distribute it, and any gain on that is taxed at the lower capital gain rate when you sell the shares. However, if you hold no employer stock in the plan, or if the administrative fees are too high, this might not be much of an incentive.

Consider Lost Perks

Sometimes having a 401(k) plan at several different brokers may have valuable perks that can make up for the hassle of the extra paperwork. For example, one of your 401(k) plan brokers might offer exclusive access to its research reports while another might have the lowest commission for trades. If you combined those accounts with your current account, and your current 401(k) doesn't offer nearly as detailed research, you could find yourself having to pay extra for a benefit you used to have for free.

When You Can Consolidate

Just because you have several 401(k) plans doesn't mean you can immediately consolidate them into one big happy 401(k) plan. Generally, you cannot move retirement assets from one plan to another until you leave the company or turn 59 1/2. If you are currently working multiple jobs, chances are you are stuck with the money staying in each plan. However, if you have 401(k) plans at jobs you've already left, you should be able to roll those plans over into new plans.

Even if you can move your funds from all your 401(k) plans, you might not be able to combine them all in your current 401(k) plan. Not all 401(k) plans accept rollovers, so check with your current company's plan benefits administrator to find out if you can move all your money to your current plan. If not, all is not lost because you can roll the funds into an IRA that you open in your own name.

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