Transferring my old 401K

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One of my New Years Resolutions was to transfer my 401K from my previous job. Honestly, I had no idea what that even meant, I just knew it couldn’t sit there doing nothing. I finally tackled this project last week and here’s what I learned:

*You cannot transfer/add your previous 401K to your current one. You must transfer it to a retirement savings plan, such as an IRA. I hemmed and hawed between an IRA and a Roth IRA and ultimately learned that a Roth IRA required a larger opening deposit than I had available so I stuck with a regular IRA.

*Set up the savings account you want to use – it does not have to be with the same company as your previous 401K. I went through Fidelity to set up my IRA. It didn’t take long at all and questions were fairly basic.

*Call the company that manages your previous 401K and tell them you want to transfer it to this new account. They will set you up with the correct paperwork you need and they are helpful in explaining the full process to you if you have any questions.

*A 401K is money that is taken out before taxes and set aside for retirement. Upon retirement it will be taxed. Sometimes, when your employer makes a matching contribution, it may or may not be taxed – I’m not sure how that is determined. My employer ultimately contributed $200, $160 was taxed and $40 was not.

*When I told the 401K company that I wanted to transfer the funds, they let me know that I could pocket the $160 from my employer contribution with no penalty or tax fees since it was already taxed. Normally I would keep it for retirement but instead it went straight to debt. Let’s just say May has started off as a successful debt repayment month!

*The remaining $40, in addition to my original 401K contribution of roughly $400, went to my new IRA account and it was a piece of cake.

I’m thrilled to have that checked off my 2013 to-do list and it’s kind of fun realizing I now have 2 retirement savings plans! I have about $3,000 tied up in retirement funds, which is bittersweet. I’m happy to be smart about my future but it’s hard to not put it towards debt.

If you have any outstanding 401K’s from previous employers, don’t let it intimidate you! I encourage you to learn about your options and make that money work for you!

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One Response to Transferring my old 401K

  1. Adam says:

    You actually can rollover a 401k to another 401k as I’ve done it a few times now. It depends on if the new employer’s plan allows rollovers though!

    Aside from a higher starting balance the benefit of a Roth account, especially if you are younger, is that if you plan on making more in the future (thereby being taxed in a higher income bracket), you’d rather be taxed at the lower rate now and get the money out for free later on.

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