What Should You Do With Your Old 401(k)?

The days of working at the same company until you retire are long gone. As a millennial, I’ve seen updates from people within my network on LinkedIn announcing that they’re joining a new company.

I see these updates regularly. They often start with..

“After X years at <insert old employer>, I’m moving onto the next chapter of my career. Starting next week, I’ll be joining <insert new employer>.”

With our generation changing jobs more frequently, it’s no surprise that we have an old 401(k) somewhere. So what should you do with it? 

1. You could leave your money where it is with your former employer’s plan. You can’t contribute more into it since you’re no longer employed there, but you can leave it there under the same plan and change your investments to other options available.

2. If your new employer’s plan accepts rollovers, you can rollover your old 401(k) into the new 401(k) plan. Then you’ll have a larger sum of money and will be able to contribute to it. Keep in mind that you’ll be limited to the fund options that plan has. 

3. You can rollover your old 401(k) into a new or existing Individual Retirement Account (IRA). Keep in mind that if you rollover a traditional 401(k) or pre-taxed money into a Roth IRA, you will be liable for taxes since it’ll count as income. If you need to do a Backdoor Roth IRA conversion, head over to my other post to learn how.

4. Lastly, you can take the cash value of the account, pay taxes, and pay a 10% penalty for early withdrawal if you’re under the age of 59 ½ years. 

The caveat is that rolling over your old 401(k) can be a lengthy process and administrative burden. One major institution that I won’t name told me that I had to fill out a form that they’ll send it in the mail and I’ll have to return it to them. Then it’ll take several weeks since they need to process the rollover.

This is seriously outdated. I’m not sending sensitive information through mail. I’m convinced that this company requires this lengthy process because they want account holders to remain with the company so I looked into other options.

Rather than going through the slow process of moving my 401(k) and risking my financial information being lost in the mail, I decided to use a company that handles these rollovers for FREE! Yes, it’s absolutely free! You might be wondering how they make money then. The company, Capitalize, handles these rollovers and gets compensated for bringing accounts to the provider. This allows them as a company to earn money, but not from the customer (us)! 

Capitalize is a fintech company that offers 401(k) rollover assistance into an IRA for free. At the time of this writing, they don’t offer rollovers into new 401(k) plans. 

All you have to do is fill out a form. You don’t even need to know your account information. All you have to know is either the institution that your 401(k) plan is with or your previous company, which shouldn’t be hard to remember. 

Their experts will locate your account and do all the admin work for you! All you have to decide is whether you’ll be opening a new IRA or rolling it over into an existing IRA that you have. 

I decided to roll over the Roth portion of my 401(k) into my existing Roth IRA. This gives me the ability to choose my funds and expenses. Their experts can even help you choose IRA providers and go over fund expenses with you. 

Capitalize provides a dashboard that shows the current status of your rollover, which is helpful.

Once I submitted my information, I received an email to schedule a time with my Capitalize expert and the institution rep so that I can give authorization for the rollover. The call lasted no more than 10 minutes, which was to verify my identity and give authorization. 

If you’re intimidated by the rollover process, Capitalize is your solution. If you researched how to do a rollover, but you have questions on how to do it the right way, Capitalize can solve that! If you’re like me who doesn’t want to have to go through a slow process and keep track of the rollover, Capitalize is the best option out there. Best of all, their service is free!

To get started, head over to Capitalize’s website and fill out and click ” Get Started”.