One of the things that is true of my generation and probably generations after mine is that the days of working for a single company your entire life are basically over. It is an extremely rare occasion where you will spend 30-40 years of your life with the same company. That would certainly be nice, particularly if you like the place you work at like I do, but it isn’t realistic. In fact, I read a study once where college graduates will not only change many jobs in their lifetimes, but may have upwards of 7 different careers. 7 careers, not jobs, careers!
Reinvention in this economic world we live in is going to be the name of the game. It will happen to practically everyone, including Mrs. ROB, who is basically on her 4th/5th career depending on how you classify it.
With the constant hopping from position to position it can be untenable to keep track of the various retirement accounts you will open with each employer. So the question becomes what do you do with those old retirement accounts? Do you just leave them with your former employer? Nope. Everyone who has a retirement account with a former employer should transfer those funds to a Rollover IRA.
What Is a Rollover IRA?
A rollover IRA is simply a retirement account that you can set up with any one of the major brokerage firms (e.g. Schwab, Fidelity, E-trade, etc) or even your local bank (although I am not sure about rollover IRAs). It takes only a couple of minutes to fill out an electronic form and create an account.
All you have to do is go to one of their websites. Navigate your way to Rollover IRA (or search for Rollover IRA) and fill out the necessary paperwork.
Once you have created your Rollover IRA account you can work with a specialist/banker at wherever you opened the account (or do it yourself) and begin the transferring of money to your new account. Typically, when you rollover an old 401k or 403b you will need to fill out a transfer form. With that form you will list your personal information (e.g. SS#, address, Rollover IRA account #) and then, if you have it, you will put in the account information for your old retirement account.
You might run into a snafu or two (which isn’t unusual). For one you may not remember your old account number. Don’t panic if this happens it really isn’t that big of a deal. Typically, the Rollover specialists/bankers will help you navigate this stuff and they may even do all the paperwork for you. All you will need to do is give them your former employer’s information (e.g. name of employer, address, dates of employment, etc) so they can set up the transfer.
Moreover, if you need to all you have to do is contact your old employer and get your retirement account number. But typically this will be handled by the brokerage firm/bank you choose.
After your fill out the transfer forms the money will be electronically wired to your rollover IRA account. If you have requested a check from your old employer take that check to the place where you have your Rollover IRA or mail it as soon as you can. You don’t want that money to become taxable income for the year. If you do there would be tax implications. If you take a check from your employer from your old retirement account and don’t deposit that money into a rollover IRA within 60 days (I think) then it is counted as taxable income for that year. You will be hit with a 10% penalty (if you are under 59 1/2 and be taxed at your income tax rate. You lose all the pretax benefits of this account. it out early and a specific tax rate you have to pay on that money.
When you rollover retirement dollars from one place to another that money is NOT taxable. It is still pre-tax until you take it out, which probably will not be until you reach retirement age.
Take all of your old 401ks/403bs/457s or other retirement accounts from previous jobs and roll them all to one account.
Advantages of a Rollover IRA vs. Keeping Them With Your Old Employer
There are a variety of advantages to transferring that money to a rollover IRA instead of keeping it with an old employer.
First, you have control of that money. When you transfer that money to a rollover IRA you get to basically invest it in any way you want too. You are no longer bound by the choices of your old company. For example, a normal 401k plan has probably 10-20 mutual fund choices in it. With a rollover IRA you have hundreds of choices. You can buy stock, bonds, mutual funds, etc. You have more control of your money. And isn’t that what a lot of us want? The ability to control our own destiny. That is good enough reason right there.
A second advantage is that your employer could go bankrupt. If you are with a company and that company goes bankrupt and you haven’t transferred that money out it is lost. It’s gone. Finito. Vanished. Zero. Why would you risk that? I don’t care what kind of company it is. Even if it is Apple I am moving my money to a rollover IRA which is something that I can control. If you love your old company so much buy stock in that company with your rollover funds.
A third advantage is the amount you might have in your account. If you have 4 different retirement accounts with a few thousand dollars in each account that really doesn’t give you a lot of purchasing power for investing. But by putting all of that money in one account you can do a lot more with it. Some investments have a minimum amount of money that you need to give them before you can invest (e.g. $3000 to open up a specific mutual fund). You can’t necessarily do that when you have a few hundred bucks here and a thousand there. The more money you combine in one account the more purchasing power you have for various investments.
For me the final advantage is the cleanliness of the whole thing. I don’t know about you but I want everything under one house. I don’t like having a million accounts here, there, and everywhere. Then you have to remember all kinds of passwords, you have different investments, not a lot of money, etc, etc. I like things clean and dirty. Let me just put everything in one account so I can deploy that money at my discretion. Moreover, there is something kind of cathartic/fun seeing all of that money under one account. If you have multiple accounts with small amounts of money here and there it might not feel that you have done a good job of saving when in reality you might be better off than you think. Putting all of that money under one house can let you see how well you are doing or if you need to do some work.
The Bottom Line
For me this is a no-brainer and should be for you too. If you have one or multiple retirement accounts at old employers then you should transfer them all to one rollover IRA at a specific bank/brokerage firm of your choosing. It gives you more control over your money, it simplifies your life, and you can probably make that money work more for you economically than it would be if it was housed in different accounts.
Transferring old retirement accounts is a fairly easy thing to do and can be done in about 10 minutes. All you really need to do is to figure out where you want to house that rollover IRA. So if you have old retirement accounts lying around from former employers roll them over to an IRA that you can control.