Episode 50: What Works Wednesday: The 2.5 Things You Can Do With An Old 401k

Welcome to What Works Wednesday! Today, we're tackling a common question: what to do with that old 401k or 403b from a previous job? Job-hopping is common, but managing old retirement accounts can be tricky. Join me as we explore your options and make the most of your savings. Let's dive in!

Transcript: 

Welcome to another episode of What Works Wednesday. My name is Leland Gross. I'm your host. And today I want to answer a question that I get asked very, very regularly. I would say most months I am answering this question in some form or fashion. And the question is, what do I do with an old 401k? Or I have an old 401k, 403b retirement plan from an old job, an old employer. What do I do with it? And it's a really

kind of growing need in the world, especially in the world of self -employment, because many times we are leaving an old job in order to start our business. So I was a financial advisor in a big corporate firm for years. And when I left, I had a 401k from my old firm. And there's only so many things you can do with that. And depending on what you choose, it can be really painful.

There's not really another way to say that. It's really sink or swim. You can either make the most of that money that you've saved that your employer has contributed to, or you can way overpay in taxes and penalties and kind of lose the money. So oftentimes in our current society, we're not staying in the same job for 40 years like older generations did. For millennials and Gen Z, it's really common to have to move firms.

move businesses in order to really grow your career and elevate experience and pay because companies are more likely to pay more money to a new person coming in in order to attract talent than to give raises from within. And there's a whole that's a whole other podcast episode that issue. But that leaves people with all like a trail of old retirement accounts. I have people come in and they're like, you know, I've got

five different 401ks from my career that I need to figure out what to do with. So it's a confusing world and not everyone really knows how to navigate it. And like I said a few minutes ago, it's a high stakes decision what you do. It can really make or break your retirement or your financial plan and doing that. So I want to go through the three or I should really say the two and a half things you can do with your old 401k.

in order to really make the most of it. So option one is the half, the half option, and that's just to leave it. So 401ks are governed by a law called ERISA. We're not going to go into all of that, but ERISA really gives a lot of control to the employer on what they want to do. But the employer also has a lot of stakes. They're a fiduciary. And so oftentimes they'll hire out a 401k third party administrator who they're paying for.

And the third party administrator will say, yep, it's going to be X amount of dollars per participant in the plan. So however many people have accounts with this 401k plan, the employer typically has to pay a certain dollar amount. Now, some third party administrators will say, you know, only active participants. So employees that are actively contributing who are still employed. Others will say anybody who has the account.