Planning Discussions - Consolidating Old 401ks

Wealth & Pension Services Group
William Kring, CFP^®, AIF - Chief Investment Officer

Why should I consolidate my old 401k Plans?

If you are like thousands of Americans who have been in the work force for a while, you may have one or more old 401k plans that are still with your former employer. Generally speaking, many individuals simply do not have the sense of urgency to move their old plan, as most 401k providers will allow you to keep the money invested, regardless of your state of employment.

However, there are several key reasons that you should consolidate your old 401k or retirement plans, as it typically works on your behalf to have them in one place. Let’s review a few of those reasons.

Investment Choices may be Limited in your Old 401k Plan

First and foremost, you should consider consolidating your old retirement accounts simply because of the fact that your investment choices tend to be somewhat limited. 401k plans have come a long way, but in many plans you are still provided with a handful of funds with which to choose from.

For example, if you were putting together a diversified portfolio, and 20% of your funds were to be allocated to a large cap growth fund, the choices that are provided to you may not be the best option available in the marketplace. By rolling over and consolidating these funds into an IRA Rollover, you can go out into the open market and find the best fund possible for each of your asset classes to ensure that you are putting together the best possible portfolio for future growth.

You May be Incurring Additional Fees in your Old 401k Plan

Investment and plan administrative fees can eat away at potential investment performance over time, especially when you consider long periods of compounded returns. Old 401k plans are often laden with fees, even if you don’t necessarily see them coming out of your statement on a quarterly or annual basis. These embedded fees come in the form of mutual fund expenses, as well as administrative expenses and are automatically taken out of the account.

By rolling over your 401k plan into an IRA, you can manage the expenses associated with your investments, ensuring that you are getting the most return off of every dollar that you have invested. Just think, if you have a retirement account worth $100,000, and you are getting charged an additional 1% in fees, that is over $1000 a year that is being removed from your bottom line. In addition, since these tend to be long-term investments, over long periods of time it could end up costing you tens of thousands of dollars that could otherwise be used towards your retirement.

Professional Investment Advice and Comprehensive Planning is Limited

Last, but certainly not least, you simply are not likely to have access to the top tier of investment advice if the majority of your monies are scattered across old 401k plans. Some retirement providers give you access to their advisors, but their ability to put together a comprehensive financial plan that is customized to your individual needs is likely going to be lacking.

By consolidating all of your investment accounts into one place, you have the ability to clearly see what you are working with, and put together the proper game plan moving forward.

The advisors at Wealth and Pension services can help to consolidate your accounts, and come up with a customized financial plan to meet your needs. Contact us today for a free consultation.