4 Risks of Leaving Money in an Old 401(k)

When you left your last job, you may have forgotten something—your money. No, not the coins in your desk drawer. Your retirement plan money.

Many people leave their money in a former employer's retirement plan simply because they don't know how to move it elsewhere. They may not even know they have other options, such as rollovers to new accounts.

But because it could be the largest sum of money you've ever accumulated, it's important to be sure you're making the right choice for your future.

The Risks of the Easy Way

Staying in your plan may be the easiest option. Your money will continue to grow tax-deferred and you may not incur the same fees, expenses or penalties as when you move your money or cash it out. But consider this:

1. Your Former Employer Is in Control

Your retirement money is subject to the rules set by your former employer. They can make changes to plan administration and recordkeeping, as well as your investment options.

2. Old Plan, New Needs

If your job has changed or you have retired, chances are your financial goals have, too. You may need to reevaluate your old plan to ensure it still aligns with your future goals. And even if you decide to keep the money in place, you won't be able to make additional contributions to the account.

3. Missing the Big Picture?

You may not be including old retirement plan money in an overall diversified investment strategy. If the money is heavily invested in one type of asset (like stocks or bonds) and not balanced out with the rest of your investments, it might expose you to unnecessary risk.

4. Out of Sight, Out of Mind

Even with paper or electronic statements, it's easy to lose track of an old account, especially if you only check on it once or twice a year. This makes it difficult to know how the investment (and your overall portfolio) is performing.

Ready to Roll?

One common alternative is to roll your money into an IRA with a company you choose. These Rollover IRAs put you in the driver's seat: You decide which company to invest with and which investment options work best for your goals.

You can add to your IRA with additional contributions or other rollovers and can even consolidate all your retirement money. You can also move money to a new employer's plan later, if allowed.¹

There are no tax penalties for rolling over money, but some companies could charge more in account fees or expenses than if you leave the money in your old plan.

Rollovers: Control, Without the Hassle

Rolling over money doesn't have to be hard. When choosing a new home for your money, look for:

• A streamlined rollover process

• Limited paperwork

• A dedicated service team

Here's how we do it.

Other Options for Your Old Plan

Rollovers to a new employer's retirement plan are another option. You'll have many of the same advantages (and disadvantages) as your former employer's plan, but the plan will be more closely tied with your new employer's benefits and communication.

A final option is to cash out your retirement plan. This is the quickest access to your money, but income taxes, a 10 percent federal penalty tax and state tax penalties will significantly reduce the amount you'll receive.²