If I change jobs a lot, should I consolidate my retirement accounts?

Consolidate Your Retirement Accounts

The huge advantage of consolidating your old and new 401(k) accounts when you change jobs is that all of your money is in one place. You don't have to keep track of as much paperwork, and it's easier to balance the diversity of your portfolio if it's all right there on the same investment summary. You may also save money on fees if they are lower at your new 401(k) versus your older one. If you decide to move the money out of your old 401(k), you have two options: transfer it into a 401(k) at your new job or roll over the funds into an IRA.

Obviously, the first option is only possible if you already have a new job and your new company offers a 401(k) plan. The most important thing to understand when moving money from one 401(k) to another is the difference between a transfer and a rollover.

In a transfer, your old company sends a check directly to your new company and the money never passes through your hands. That excludes you from having to pay income tax on that money.

In a rollover, however, your old company makes the check out to you. Now it's your responsibility to deposit the full amount in your new 401(k) within 60 days or the money is taxed as income and you are slapped with an early withdrawal penalty if you're younger than 55. To make things more complicated, your old employer has to withhold 20 percent of your account balance, which will be returned to you as a tax refund. In the meantime, you need to come up with that 20 percent from your own savings in order to deposit the full account balance in your new 401(k). So remember: "Transfer good. Rollover bad."

If your new job doesn't offer a 401(k), or you don't have a new job yet, your other option is to roll over your old 401(k) funds into an IRA. In this case, "rollover" isn't a four-letter word. The money is sent directly to the IRA fund, and you aren't on the hook for any taxes. Most major investment firms offer rollover IRAs, although the fees vary, so shop around.

Author's Note: If I change jobs a lot, should I consolidate my retirement accounts?

Young people should not be trusted with their retirement planning. I remember when I opened my first 401(k) account at my first real job with benefits. Despite the helpful pamphlet from human resources, I had no idea how much I should be investing in this thing. "You want to take how much out of each paycheck?" Retirement seemed like a lifetime away, and when I left that job a few years later, it was very tempting to cash in the few thousand bucks I had stashed away under the radar. I owe my father — a consummate and conservative financial planner — a big "thanks" for convincing me to roll over the money into an IRA, which we later converted to a Roth IRA. As I said, young people should not be trusted with retirement planning. Let's hope I remember my father's advice when my own kids get their first 401(k).

Related Articles


  • Anderson, Nancy. "7 Reasons Not to Roll Your Orphan 401(k) to an IRA." Forbes. Jan. 24, 2013 (April 18, 2013) http://www.forbes.com/sites/financialfinesse/2013/01/24/7-reasons-not-to-roll-your-orphan-401k-to-an-ira/
  • Brandon, Emily. "New job? What to do with your 401(k)." MSN Money. Nov. 20, 2012 (April 18, 2013) http://money.msn.com/baby-boomers/new-job-what-to-do-with-your-401k
  • Bureau of Labor Statistics. "Number Of Jobs Held, Labor Market Activity, And Earnings Growth Among Younger Baby Boomers: Recent Results From A Longitudinal Survey." Aug. 25, 2004 (April 18, 2013) http://www.bls.gov/nls/nlsy79r20.pdf
  • Investopedia. "Fully Vested" (April 18, 2013) http://www.investopedia.com/terms/f/fully-vested.asp
  • Meister, Jeanne. "Job-Hopping is the New Normal for Millennials: Three Ways to Prevent a Human Resources Nightmare." Forbes. Aug. 14, 2012 (April 18, 2013) http://www.forbes.com/sites/jeannemeister/2012/08/14/job-hopping-is-the-new-normal-for-millennials-three-ways-to-prevent-a-human-resource-nightmare/
  • Vernon, Steve. "Rolling your 401(k) to an IRA? Think twice." CBS MoneyWatch. May 17, 2012 (April 18, 2013) http://www.cbsnews.com/8301-505146_162-57428555/rolling-your-401-k-to-a-ira-think-twice/
  • Wohlner, Roger. "Avoid Retirement Clutter." U.S. News & World Report. Oct. 12, 2011 (April 18, 2013) http://money.usnews.com/money/blogs/the-smarter-mutual-fund-investor/2011/10/12/avoid-retirement-clutter