Should I Keep My 401K With My Old Employer?

I graduated with my bachelors degree about 7 years ago now, and I have since been employed with four different companies.  I left three of those companies of my own accord, and another due to cutbacks.  Regardless of my reason for leaving, each time I started somewhere new there was a mound of paperwork to do, and multiple accounts to transfer.  I’m pretty lazy when it comes to just about anything outside of work, and paperwork is no exception. So it shouldn’t be a surprise that I’m quite content letting a portion of my 401k savings sit within my previous employers plan, but there are strategic reasons behind this as well.

Leaving a portion of my 401k savings in my previous employers account obviously takes less effort than if I spent time filling out the paperwork and moving it.  However, I also have access to the Fidelity Target funds, which diversifies and allocates your investments based on your estimated retirement age.  I know many of you have your opinions on these funds, but like that old informercial use to say, I can “set it and forget it”.  Quite honestly, I’m into just about anything that simplifies my otherwise busy life.

Plan fees are another area you need to consider.  401k plans are not run by non-profit organizations, there are administration costs to you and your employer.  I work for a very large corporation, and I still pay some nominal annual fees.  However, my previous employer is still picking up the entire tab for my 401k plan fees, either they aren’t checking closely enough, or they simply pay the entire amount owed regardless of who is invested in their plan.  I continue to earn money on this account, and pay nothing for it.

As I stated in my first reason, I like to invest in the Fidelity Target fund, an option I don’t have with my current employer.  But my reasoning goes well beyond this convenience, it’s also a matter of diversification.  401k diversification goes beyond the allocation of your investment in a single plan.  At one point I actually had three different 401k accounts, and it took me nearly a year to transfer my third one.  Why you ask?  Because I had lost so much money in that plan during the recession, that I refused to buy high and sell low.  Instead, after my account was depleted 70% following the market bust and subsequently hit rock bottom, I watched it sky rocket month after month.  In fact, the investment options in that account had done so well, I still haven’t seen anything like it in my current 401k accounts.

If you leave your company for a new one, be smart, perform your due diligence, and see what choice makes the most sense for you.  If you’re lazy like me, seeing great returns, paying low-to-no fees, or crave investment diversification, then maybe you should just leave that 401k account where it is.

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17 thoughts on “Should I Keep My 401K With My Old Employer?

  1. Money Beagle

    I’ve always found that it’s best to move them to your current employer. That way, you only have one to deal with. Plus, most employers seem to switch companies and funds every few years, so even if you have one that seems to have really cool funds or whatever, chances are you’ll lose that benefit at some point.

    1. admin Post author

      It does make it easier to track. Though between my HSA accounts and 401k’s at each employer, the paperwork gets tedious.

  2. Ashley @ Money Talks

    Sometimes you don’t have the option to leave it with your ex employer. Usually if the balance is under a certain amoun they will just send you a check a set amount of time. Then you have 60 days (I think) to put it into a retirement account or you owe the taxes and fees.

    1. admin Post author

      All places are different, that’s for sure. Luckily I was able to leave mine when I desired to do so.

  3. retirebyforty

    When I leave my employer, I will transfer 401k to IRA.
    That way, I have more investment options. You can transfer it to Fidelity if you like Fidelity funds.

    1. admin Post author

      That isn’t a bad idea, and something I struggled with last year when I changed jobs… I ended up leaving my 401k money in place.

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  5. Bret @ Hope to Prosper

    Justin,

    It’s really important to consider the financial condition of your former employer. If they become insolvent or key members of the accounting staff leave, it can be a major hassle to get your 401K back. Anyone who was downsized by a struggling employer or working for a startup should get their 401K transferred immediately. If the plan administrator ( the employer) disappears, you have no one to proces the paperwork and you can’t get the money directly from the investment bank. I read some forum comments from people in this position and it wasn’t pretty.

    I left my 401K at my former employer for a couple of years. I knew everyone there and it was a good plan. When I found out my old boss the CFO was leaving, I transferred it into an IRA. Now, they are down to one employee in the U.S. and he is a salesman working from his home. I’m glad my old 401K is safe and sound in my IRA.

    Bret

  6. admin Post author

    You bring up a good point, I actually knew someone that this had happened to. Fortunately my plans were with fortune 500 companies so I had little to worry about.

  7. JT McGee

    I don’t know much about 401ks; I don’t have one, and I’m almost lucky in that regard as I don’t have to deal with the human resources bureaucracy.

    However, be careful with those Fidelity target date funds. They look cheaper than they are because the annual fees are only calculated on the fund itself. Inside the target fund, however, are some of Fidelity’s most expensive funds, which charge more fees.

    Fund of funds can kill you on fees…that’s why they love ‘em!

  8. Crystal

    I personally am very lazy, but I also like to know where all of my money is. Money trumps lazy to me and I’d move it all to be together and easily watched. :-)

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  11. Chris G

    I am in similar situation where I am thinking of transferring a 401k from a previous employer. I have heard a lot of good things about Vanguard, low fees, no fees to trade in there core ETF’s. Anyone have an opinion that that, or alternates? I think the idea of diversification in retirement accounts is probably good, as long as you can keep track of them all.

    1. admin Post author

      Chris, Im not overly familiar with Vanguards offerings, but ETFs are typically the low cost way to go! Fidelity and most other brokerages all have similar options for their core funds.

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