Why do People Delay 401(k) Rollovers?

401k rollovers allow you to move your old 401k from a previous employer to an IRA account. A 401k rollover to an IRA account, done properly, is an easy tax-free exchange that provides increased flexibility and more investment choices. Moving away from your limited menu of investment choices within your 401k account is a good idea. Combining multiple IRAs and old 401(k)s into a single IRA account can result in simplified account access and a unified investment strategy. Dealing with multiple account login and statements can be confusing and hard to keep up with.

401k Rollover to an IRA is a Critical Action

Your 401(k) account is not by itself a retirement plan. A 401(k) is simply a convenient place to accumulate money. But the tax-deferred nature of most 401(k) money may be a disadvantage in a rising-tax environment. Plus, the limited investment choices and limited flexibility can be problematic. Thus, 401k rollovers to IRA are important for your successful retirement. A 401k rollover to IRA allows you to fix some of the negative issues within a 401(k).

Not Rolling Over Your Old 401(k) May Feel Safe Because You Stopped Questioning It

Many people leave money sitting in an old 401(k), without a 401k rollover to an IRA, long after they leave an employer. Not because they carefully reviewed the plan, its performance, or studied the investment choices.

They leave it there because it feels familiar. Making a change takes effort and may be uncomfortable. They are planning to get around to reviewing their retirement, but just haven’t yet. Maybe they just don’t know where to get trusted advice about a rollover.

They see the balance. They remember the years of payroll deductions. They watched the account grow while they were working. Somewhere along the way, that old 401(k) started to feel like a trusted retirement plan. But more often than not, it is just a mediocre-performing retirement saving account that they don’t know how to improve.

Just Contributing to Your 401k is Not a Retirement Plan

A lot of people do not love their 401(k). They are just simply comfortable with it. The kind of comfort that comes with familiarity, but without the firm knowledge of how it will provide for their retirement. Without a clue as to the monthly income or retirement serenity their 401k would provide. They are comforted by the confirmation from their co-workers who say the 401k plan is great. But how can their co-workers have the financial knowledge to know for sure the plan is good? Being in the same boat as everyone else my feel comforting, but what if your companions don’t know the boat is sinking?

They like that their 401k has grown. But they don’t really understand how much of the growth is from their contribution, or from their investments’ growth. They can see progress, and that’s obviously good. But do they have the tools to determine how good their 401k is relative to other retirement options?

They love their 401k balance on the screen. Their current balance does not say how well their 401k will perform in a stock market downturn? It does not say how much risk they are taking.

That balance can feel comforting. It can feel like proof that things are building a path to retirement. It can make people feel responsible, prepared, and safe. But a balance alone does not tell you whether the account is optimal, flexible, well-invested, or even appropriate for your retirement. Most importantly, it does not tell you how well that balance will support your day-to-day needs retirement. Nor does that balance say how well your 401k will withstand higher future inflation, and higher future taxes.

How to Evaluate Your 401k Performance

In most cases, your 401k balance does not tell you whether your investment choices are strong or mediocre. It does not tell you whether your risk level still makes sense. And it does not tell you whether that old employer plan still deserves to hold your retirement money. However, most people only review their 401k balance and don’t dig deeper.

This is where many people get trapped. Their 401k balance gives them comfort. They confuse comfort with wisdom. They confuse market-depended growth with good investment performance. They confuse doing nothing with being safe, with being prepared, or having a true retirement plan.

But doing nothing is still a decision!

If you are 45, 55, 65, or already retired, your retirement money should not be sitting in an old employer 401k plan just because you never got around to looking at it.

You worked too many years for that money to let it drift on autopilot.

An old 401(k) is not a trophy from a past job. It is not a museum piece. It is not something you keep in a financial junk drawer along with other old stuff. It is a financial tool. And if that tool no longer gives you the control, flexibility, investment options, or the retirement strategy you need, then it deserves to be questioned.

The real question is not, “Do I like my old 401(k)?”

The real question is, “Is this still the best place for my retirement money now?” How will this old 401(k) serve me in retirement?

In order to properly evaluate your 401(k) performance, you must isolate the investment performance growth from your contributions. Don’t confuse growth from your contributions with investment growth. Then compare that investment growth with relevant investment indexes. A Certified Financial Planner can help you with this comparison.

A 401(k) Rollover Is a Tax-Free Exchange

Some people delay rolling over an old 401(k) because they do not understand the tax consequences.

A 401(k) rollover is when you move money from an old employer retirement plan into an IRA where you have more control, flexibility and investment choices. An old Roth 401(k) can be rolled over to a Roth IRA.

When done correctly, a direct rollover from a 401k to an IRA is tax-free at the time of the rollover. The money stays inside a retirement account, but you may gain dramatically more control, more investment choices, and a flexible way to manage your retirement money. Why would you delay taking control?

The key phrase is “when done correctly.”

The safest method is usually a direct rollover, where the money moves from the old 401(k) plan directly to the new IRA provider. You do not personally take possession of the money, and that helps avoid unnecessary tax related problems.

If the money is paid directly to you, the rules can become more complex. If the 401k money comes into your hands (in your control), you only have 60 days to complete the rollover. Miss that deadline, and what should have been a tax-free rollover could become taxable income.

If a check is sent to you, but made payable to your new IRA custodian, it would still be considered as a direct rollover since you never got personal possession of the funds. This is also a tax-safe way to rollover your 401(k)

Done correctly, a rollover may help you take an old, forgotten 401(k) account and turn it into something more organized, more flexible, and more connected to your actual retirement plan.

Never Rollover Your Old 401(k) Into a New Employer’s 401(k)

From a retirement planning viewpoint, we advise against rolling over your old 401(k) to your new employer’s 401(k). This action would leave you with more money in a limited menu of investment choices, lack of liquidity, lack of flexibility, and less control of your retirement plan. Whenever you leave an employer, you have an opportunity to gain more control of your retirement investments and build a retirement plan.

Take advantage of your job change! Rollover your old 401k into an IRA!

Why do People Delay Rolling Over Their Old 401(k)s?

It is always surprising how many people leave money sitting in an old 401(k) long after they leave or separate from an employer. Many people have multiple old 401(k)s scattered across past jobs, with different logins, different statements, different investment menus, and no real retirement plan pulling it all together. This situation is incredibly common.

In many cases, consolidating old accounts into a single IRA could make the money easier to manage, easier to track, and easier to build into a real retirement strategy. So why do so many people delay? Maybe they do not realize that a properly handled 401(k) rollover to an IRA can generally be done without triggering taxes. Maybe they assume the process is complicated. Maybe they are afraid of making a mistake. Or maybe they can’t get around to it.

Or maybe they have simply never looked closely at what they are leaving behind. The average plan may only have a couple dozen investment choices. Most of which closely mimic the movement of the stock market index.

That is not a full investment universe. That is a limited investment menu masquerading as a retirement plan. By rolling over to an IRA account, your investment choices may increase from a small menu to over 20,000 investment choices. What are the chances you may find something better than the limited menu sitting inside your old 401(k)?

More choices do not automatically guarantee better results, but they can create more room for better planning, better risk management, better growth and income strategies, and more control.

As retirement gets closer, risk matters more, flexibility matters more, and income planning matters more. It is important to review all your retirement accounts and plans with a Certified Financial Planner who can give you some suggestions to balance growth, risks and income without any obligations.

Why are People So Happy with Their 401ks

We have met many people who say they are very happy with their old 401k. Therefore, they have no desire to complete a 401k rollover to an IRA. The problem could be that their old 401k may be the only long-term stock market investment that they have experience with.

Since 2008, the stock market has been very kind to us. An average 401(k) following the stock market may have performed wonderfully compared to some other saving type accounts. Many may not understand the risk they are taking or the potential of other investment choices.

Often, we ask people why they like their 401k so much? We frequently hear an answer similar to “We like the growth we have seen over the years.” So, then we ask “what growth have you seen?” We get a lot of blank stares after that question. If they do have an answer, it is often something like “My 401(k) doubled in value.” Then we ask “over what time period and what does that break down to in average annual gain?” When we rarely get an answer, we then ask “what part of that average gain was due to the investment performance and what part was due to your contributions.” Again, we get a lot of blank stares.

Our point is, few people truly know how well their 401K is doing compared to standard performance metrics. So “liking” their 401k is more an emotional feeling than a financial understanding. It comes more from a feeling of familiarity and comfort versus the fear of an unknown investment. But hard number considerations should prevail when optimizing your retirement.

Hard numbers should guide your retirement decisions.

Review of your 401(k)s and IRAs is an Obvious Necessity

When reviewing your 401k or IRA it is important to understand the performance and risk issues. Even if you consider yourself an expert, having a second opinion is a good idea. This is particularly true when a second opinion comes with no cost or obligation when provided by the advisors at Serenity Wealth Management.

Multiple Old 401(k)s Can Become a Mess

Different employers. Different plan providers. Different passwords. Different fund menus. Different fees. Different statements showing up at different times. This is not a retirement plan. This is an uncoordinated mess.

One old 401(k) is easy to ignore. Two or three old 401(k)s can become a financial junk drawer.

At first, it may not feel like a problem. Life gets busy. You change jobs. You raise kids. You deal with bills, health issues, aging parents, market swings, and everything else real life throws at you. So the old 401(k) gets pushed aside. But years later, that account is still sitting there. Maybe several accounts are sitting there. And now you are closer to retirement, trying to figure out whether you have enough, where your retirement income will come from, and how much risk you are really taking. That is when the mess starts to feel heavy.

The more accounts you have, the harder it becomes to know what you actually own, what risks you are taking, and whether your investments are even working together.

You may have one account invested aggressively, another sitting too conservatively, and another filled with funds you picked years ago and never looked at again. That is how retirement money gets neglected. Not stolen. Not lost overnight. Just ignored until nobody really knows what the plan is anymore.

Consolidating old accounts into one IRA may give you a cleaner view of your money. It may make it easier to track performance, manage risk, review fees, update beneficiaries, and build an actual retirement strategy.

More importantly, it may give you something many people desperately want as they approach retirement: clarity. Your retirement should not depend on a pile of forgotten accounts from jobs you left years ago. If your money is scattered, your strategy may be scattered too. Let Serenity Wealth Management help turn scattered retirement accounts into a clear retirement strategy.

Doing “Nothing” Is Still a Decision

Many people think leaving an old 401(k) alone is the safe choice. It feels harmless because there is no paperwork, no phone calls, no decisions, and no chance of making a mistake. But doing nothing is still a decision. It is a decision to keep the same investment choices and risk level, whether or not they still fit your goals.

That may have been fine when you were 30 and still had decades to recover from mistakes. But if you are 50, 60, or already retired, hidden fees, poor investment choices, market declines, and weak retirement planning can matter much more. Your retirement money should not be sitting in an old 401k plan just because it has been quiet. Quiet does not mean safe. Quiet does not mean smart.

When a Rollover May Make Sense

A 401(k) rollover may make sense when you have left an employer. If the plan has limited investment choices, unclear fees, or poor service, why should your retirement money stay there?

A rollover may also make sense if you have multiple old 401(k)s scattered across past jobs, or if your old investments no longer fit your current stage of life. A portfolio built for accumulation may not be right when you are approaching retirement and need income, stability, and flexibility. A rollover is not about moving money just to move money. It is about asking whether your old employer plan still deserves to hold money that may need to support you for the rest of your life.

When a Rollover May NOT Make Sense

Not every 401(k) should automatically be rolled over. Some employer plans may have very strong investment choices. The point is that every old 401k should have to justify why it is still there. Blindly keeping an old 401k is not wisdom. Your money deserves more than a lazy default decision.

A “still working” exemption from RMD, regardless of age, applies your current 401(k). An IRA does not get this exemption.

Frequently Asked Questions

What is a 401(k) rollover?

A 401(k) rollover is when you move money from an old employer retirement plan into another retirement account, often an IRA. People usually do this after leaving a job, retiring, or to consolidate old accounts. The goal is usually more control, better organization, and a clearer retirement plan.

Is a 401(k) rollover to an IRA taxable?

A direct rollover from a traditional 401(k) to a traditional IRA is not taxable when done correctly. The money stays inside a retirement account, so taxes remain deferred until withdrawals are taken later. The danger comes when the money is paid directly to you and the rollover rules are not followed.

What is the 60-day rollover rule?

The 60-day rollover rule applies when retirement money is paid directly to you instead of being sent directly to another retirement account. In many cases, you have 60 days to complete the rollover. If you miss the deadline, the money may become taxable.

What is the difference between a direct rollover and an indirect rollover?

A direct rollover moves money straight from your old 401(k) plan to your IRA or new retirement account. An indirect rollover pays the money to you first, and then you must deposit it into another eligible retirement account within the required time. Direct rollovers are usually cleaner and safer.

Why should I rollover an old 401(k)?

You may want to rollover an old 401(k) if the plan has limited investment choices, no protection from market declines, poor service, or structure that does not fit your retirement plan.

Should I leave my 401(k) with my old employer?

Seldom does a 401(k) plan, with its limited investment menu, offer optimal choices. Investing for retirement should not be done by default. By keeping an old 401(k) you are not managing your nest egg. You are ignoring it.

Can I roll over multiple old 401(k)s into one IRA?

Yes, people nearing retirement roll over multiple old 401(k)s into one IRA to make their retirement money easier to manage. This can reduce the confusion of different logins, statements, fees, investment menus, and plan rules. If your accounts are scattered, your strategy may be scattered too.

Does a rollover count toward my IRA contribution limit?

No. A rollover does not count toward the regular IRA contribution limit. Contribution limits apply to new money you add each year, not retirement money being moved from one eligible account to another. This is one reason people should not confuse IRA contributions with IRA rollovers.

Is a rollover limited by my income?

No. A rollover is not limited by your income. You could have a million-dollar income and still be able to do a rollover under current tax law.

Can a 401(k) rollover give me more investment choices?

Often, yes. Many 401(k) plans offer a limited menu of investment options, while an IRA may open the door to a much wider range of choices. More choices do not guarantee better results, but they can give you more room for planning, risk management, and income strategy.

What happens if I do nothing with an old 401(k)?

If you do nothing, the account may stay invested inside the old employer plan assuming that old plan stays open. That may feel safe, but it also means you are keeping the old investment menu, old plan rules, and old level of control. Doing nothing is still a decision.

How do I know if a 401(k) rollover is right for me?

Start by asking what new investment choices you have, how these choices have performed, and whether the risk level still fits your age and retirement timeline. A rollover may make sense if it gives you better control, organization, flexibility, or planning options.

Can I roll over a 401(k) while I am still working?

Sometimes, but not always. Some employer plans allow in-service rollovers while you are still working. Typically plans allow in-service rollovers after age 59 ½. Others may allow it as early as age 50 or 55.

If you rollover a previous 401k into your current employer’s 401k plan, some plans may allow you to roll over that part of the current plan that is attributed to the previous 401k. This is an option that many people are not aware of. Check with your 401k plan’s rules.

What is an “in-service” rollover

Most 401(k) plans allow for an “in-service” rollover once you reach a certain age. Most plans set this age at 59 ½. Some plans set the age even earlier. Most in-service rollover plans allow you to continue to contribute to your 401(k) and get company matches after the partial in-service rollover.

This allows you to have more investment choices and flexibility for the majority of your 401(k) money now that it has been rolled into an IRA account. Taking advantage of this option is a highly valuable retirement-planning tool that most people don’t even know about! It is important to review your specific plan rules.

Should I get help before rolling over a 401(k)?

Yes, especially if you are near retirement, or you are unsure about taxes, investments, income planning, or beneficiaries. A rollover can be simple, but a mistake can be costly. A good review should compare your current plan with your rollover options. But from whom you get advice is critical.

Although your company’s HR department may have good intentions and can be helpful, it does not have the expertise, financial certification, and licenses to give advice regarding retirement decisions. Nor do your co-workers have the knowledge. Seek the advice of a Certified Financial Planner.

Curtis Hill, CFP and Irina Hill, CPA provide financial advice, investment advice, retirement planning, and life insurance in the Long Beach, CA; Lakewood, CA; Carson, CA; Bixby Hills, CA; Signal Hills, CA; and Los Angeles, CA areas. There are various ways to rollover your IRA or 401(k), and Curtis and Irina are experts at doing these rollovers. In addition, Curtis and Irina are experts at various ways to reduce the future tax burden of tax-deferred accounts through Roth IRA conversions or other tax-free accounts.

The above are excerpts from the book “The Wealth Conspiracy, Avoid the Dark Side of Wall Street” by Curtis Hill and Irina Hill

The Wealth Conspiracy: Avoid the Dark Side of Wall Street

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Go to the Calendly.com calendar link below to schedule an appointment with an expert, Curtis Hill or Irina Hill. Discover how a 401(k) ROLLOVER can enrich your retirement life for the better. Moving your 401(k) to an IRA can dramatically improve your investment options. Then moving your IRA to a Roth IRA can greatly reduce or eliminate your tax liability in retirement.