Don’t Leave Your Money Behind

/ March 13, 2014

Hands and money in envelope - iStockRecently, Joe Larson wrote about what to do when you’ve been terminated by your employer and what your rights are with respect to your personnel file. It raises a reminder that whether you have been laid off, terminated or voluntarily opted to leave your job you shouldn’t forget about your 401(k) when you move on.

One reason to consider rolling over your 401(k) when you leave your job is merely so that you do not forget about the account years down the road. We emphasize to clients the importance of ensuring your estate is organized when you pass away to make the administration easier for your loved ones. One simple way to ensure this is knowing where all of your accounts are located. If you forget about that 401(k) from the job you had 10-15 years ago, it might be a long time before the account is distributed to your loved ones after you pass away. We often hear of families discovering an old 401(k) months, or even years, after the person has passed away.

Additionally, when people forget about an old 401(k), they also neglect the beneficiary designations on that account. Jamie Held wrote about the common issues we see when people fail to update their beneficiary designations. When a 401(k) is out-of-sight, it is usually out-of-mind, and people will find that they have outdated beneficiary designations listed on those accounts. If this is the case, the outdated designations can either cause the assets to be distributed incorrectly, i.e. to an ex-spouse, or could even force a probate if the account has to be distributed to the estate instead of a beneficiary. See Maggie Green’s post, Beneficiary Designations and Estate Planning for Retirement Accounts, for reminders about proper beneficiary designations and Chris Hiestand’s post, 3 Steps to a Thoughtful Beneficiary Review, to ensure your designations are up-to-date..

Rolling over your 401(k) can also be advisable because you might find you have more flexibility in your investment options than you did within your employer’s plan. Likewise, when the account is out-of-sight and out-of-mind, you might find the allocations of your old 401(k) plan have shifted jeopardizing your overall retirement allocations. Additionally, once you leave your job, you can no longer contribute to that 401(k) plan anymore. However, if you roll it over to an IRA, you can continue to invest in that account.

When you leave a job, be sure to contact your human resources department to obtain the necessary paperwork to rollover your 401(k). It is also advisable to meet with a financial advisor to ensure that the rollover is done properly to avoid any early withdrawals fees, penalties or taxes.