The older you get, the greater the chances that you have ‘old’ 401(k) accounts at former employers, or multiple IRAs from retirement plan transfers from leaving multiple jobs. While transferring the 401(k) s from multiple employers into multiple IRAs was the best way to go, leaving them ‘unattended’ makes them vulnerable to being forgotten by you. One strategy to help manage them efficiently is to transfer them into one IRA.
Transferring old 401(k)’s and IRAs into one IRA not only saves you money on fees associated with having each account open, it also helps you to manage them when you compile the information from each into your financial plan. It’s possible that you have multiple accounts invested in the same funds in various 401(k) and IRA accounts. Leaving them ‘unattended’ creates risks in your portfolio that are not aware of if you’re not actively managing them.
If you are considering a transfer of your unattended accounts, keep in mind the following ways to transfer a 401(k) to an IRA, or an IRA to IRA transfer:
Direct Transfer Custodian to Custodian: This is the best way to transfer and in some cases the only way to transfer your unattended retirement account(s). By you not acting as the ‘middle man’ (check coming to you) you are not liable to ensure the money is transferred into your new account within 60 days. By having the custodian of the old account send the check to the new custodian, you avoid the IRS penalties associated with the 60-day timeline. Those penalties include taxes and in some cases, the automatic penalty for taking the money out prior to retirement.
Indirect Transfer: In this situation, the check comes directly to you and you have 60 days to get that unattended retirement account check to the new fund company, or be subjected to ordinary income tax, plus early-withdrawal penalties (if applicable). The IRS limits the number of times an indirect transfer can occur to one time per calendar year (https://www.irs.gov/retirement-plans/ira-one-rollover-per-year-rule), as this was becoming a problem of Americans missing the 60-day window and then being penalized. The IRS realized that transfers this way were in some cases part of a ‘scheme’ by the individual to access the money easily for loan purposes. Regardless of the number of unattended accounts you want to move into your one IRA, you are limited to one transfer per year if you have the check come to you from the old account custodian.
If you have unattended retirement accounts that you would like help with, please contact our Las Vegas Financial Advisor office for a meeting.