Money, Podcast

Re-Investment Options for Old 401(k) Accounts

Today I’ll be jumping back into a money management topic. Recently I finalized my IRA investment account with my bank and I was so proud for completing this process. First of all, I sent an inquiry about transferring over a 401k last August (I think) and it wasn’t until November that my account was finally funded and earning money. 

So rewind to 2019, I had to leave my job in order to move to Texas, so I actually left behind my 401k fund too. I knew that I’d have to transfer that money into a new account someday to ensure it was fully mine, but I was dragging my feet.

Knowing that millennials, and frankly most working adults, switch jobs every few years; I knew that I wasn’t alone. According to the Department of Labor, the average adult will hold 10 jobs before the age of forty and that number is rising! So if you’re like me and the average adult, we’re job hopping and probably leaving money on the table that our future selves can use!

Option Types for Old 401(k) Accounts

Lucky for us, I’ve compiled a few options for investing your funds, whether it be current income or past 401k funds to maximize your earnings from past jobs. I have to say though, I’m no economist or investment professional. So take my advice with a grain of salt and do your own research!

Bank IRA (Roth IRA)

This doesn’t necessarily have to be the commercial institution you currently work with (such as Bank of America, PNC, Chase) but somewhere you can park your funds and aggressively invest in for retirement. This is an individual retirement fund (hence IRA), so it’s not sponsored by your job. I personally went with my bank to consolidate where I manage my other funds too.

Online Managed Funds

Some examples are Vanguard or Ellevest. These are low fee investment portfolio options but online. These are great for index funds, ETFs, and goal-oriented investments. I dabbled a bit with Ellevest and really liked the positive connotations they gave to emotional investing such as choosing companies with sustainability plans or are women owned. But I quickly realized that you have to be contributing to it regularly to make it worthwhile. At the time, I wanted to focus more on my 401k contributions. Also, they just added a membership fee and I wasn’t consistently using the account. But overall, these are good options for balanced stock investing. 

Stock Apps

Examples are Robinhood, Stash, and Dough, super popular investment apps for individual investments in stock like Starbucks, Google, Apple, Netflix (all the big boys). This is where you can buy actual shares of a company without all the fuss of having a broker manage an account and being pressured into putting up a lot of money upfront. I like to use this app to purchase into some of my favorite publicly traded companies. 

CDs or Certificates of Deposit

This is kind of an old-fashioned form of investing at a bank. You’re essentially loaning the bank your money and it’s locked for a set number of years. After the period ends, you will have access to the money you put in and compound interest. The longer the term, the higher the interest. 

Why I Chose an IRA for my Old 401(k) Account

I’ve tried all of these options and I think they all have their place in our investment lives. I’ve learned that it’s important to dabble a little here and there with your investments because you don’t want to put all your hopes and dreams into just a few companies or mix of companies.

So when I left my last company in Milwaukee, I had a few options. I initially left those funds in the 401k and it continued to grow. However, the money was doing nothing for me because I was not making additional contributions and it was no longer being matched annually by my company.

The other option was to transfer the funds to another retirement account with no penalties, and the last option was to withdraw the cash with additional fees. I opted to roll my funds into a new account. And here is what I think was key.

Knowing that I’d end up changing my job a few more times in the future, I wanted to have a place to put my retirement funds without paying extra fees. So if and when I change jobs again after establishing a 401k, I can roll those funds into my 1 IRA account and never miss a beat with the crucial interest. 

The Importance of Re-Investing Old 401(k)s

I think this is key especially for those in their 20s who need to establish their career by hopping a few times, but also need a stable way to start growing their retirement investments. And even for some of us who are already looking at 30 and beyond, we need a more organized way to manage our retirement accounts and ensure that we’re aggressively investing it to maximize retirement years. 

Did I convince you yet? I strongly believe that opening an IRA is the best option for old 401ks. Like the stat suggested, you may be adding more to it when you leave your job, and if you got it like that, you can add additional post-tax contributions to help your money grow faster. 

Tips for the 401(k) Rollover Process

Here are a few tips I have on the process. It’ll save you time, so you’re not spending months trying to finalize it like I did and experiencing hard lessons if it’s not done right. 

  • Distribution fees – understand that there are fees for withdrawing cash before 59½ years old. However, if you request the funds to rollover directly into an IRA, you’re good. 
  • Processing times – processing for your funds may take a while on the part of the issuer. So be sure to be diligent in your follow up and following the instructions precisely to request your money.
  • Research options – don’t just take my word for it. Obviously I’m talking up IRAs but there are other ways to transfer your funds like to your current 401k or directly into individual stocks.
  • Determine your goals – Of course this is a given but be clear about what you want to do with your money. I knew since I’d been just sitting on my money I had to get it back into an aggressively invested account for retirement since I’m still in my 20s. 

So that’s my advice on how to handle 401k funds from old employers. I still love the other options, but I personally see them as additional money growth options. The retirement fund is my primary investing channel at this point because I can optimize my interest earnings in the long-term. As I continue to earn extra money post-taxes, I will shuffle around that extra money to the other options.

I hope this gives you some insight on how you can invest your money that may be laying dormant with your old employers–who are probably making more money from it! Get it together, and put your hard earned retirement funds to good use today!

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