The Personal Finance Podcast - What to Do With Your Old 401(K) (Step-By-Step!)

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Starting point is 00:00:27 Call 1866-531-2600 or visit conexontario.ca. on this episode of the personal finance podcast, we're going to talk about what to do with your old 401k at work. What's up everybody and welcome to the personal finance podcast. I'm your host, Andrew, founder of mastermoney.com. And today on the personal finance podcast, we're going to be talking about what to do with your old 401k at work. If you guys have any questions, make sure you hit us up on Instagram or TikTok at Master Money Co. And follow up. us on Spotify, Apple Podcasts, or whatever podcast player you are listening to this podcast to on right now. And if you want to help out the show, leave a five-star rating and review on Apple Podcasts or Spotify. Now, today we are going to be talking about one of the most common questions that I have been getting, which is, what do I do with my old 401k at work? And the reason why we are talking about this is because a lot of people are not staying at their job as long as they

Starting point is 00:01:46 used to. And so this is a very common thing that is coming up now. People need to understand what to do with their old 401k. In fact, there has been stats coming out that over 25 million people have dead 401k's just sitting at their old employer and have no idea what to do with them. Let me tell you, this episode is going to show you that you do not need to do that. You need to take this money and put it towards your wealth building and put it towards your financial future and put it towards your financial independence so that you can retire that much faster. So we are going to talk about what to do with your old 401k today. In addition, I have a step by step PDF on exactly how to do this that is linked up in the show notes down below so that you can go through this process and really have it

Starting point is 00:02:29 all set up for you. In addition, I also give you scripts on what to say when you roll over your 401k into a new IRA or whatever other option you choose when we go through some of these options here. So today we're going to be going through first how to find your old 401K. If you're one of those folks who are part of the 25 million who do not even know where their 401k is, I'm going to show you how to find your 401k because that's first step one. Then I'm going to show you the options that you have. One of these options is a terrible option. The other options we're going to talk about are fantastic options, but I'm going to lay out all of them for you so that you know of all the options that you have. And then I'm going to go step by step through exactly

Starting point is 00:03:06 how to do this process so that you can move your 401k into somewhere that you can control into some of the best investments that you can find out there as well. So that's what today's episode is going to be on. I'm really incredibly excited to share this with you because there's way too many people out there who are not taking advantage of their old 401K. We're going to change that for you. So let's get into it. All right.

Starting point is 00:03:28 So the first thing you're going to need to do is find your old 401K. This is incredibly important. A lot of people don't know where to find their old 401k. So here is exactly where you start. If you don't remember where your old 401k is, then what you want to do is contact your old employer. Now, typically, the folks who run the benefits are going to be your HR department. Now, if you're a very small company and they don't have an HR department, you're going to want to call the owner or whoever your manager was. But most companies have an HR department, and that is

Starting point is 00:03:55 who you're going to reach out to directly. And that's going to be the fastest way to be able to find your 401k and where exactly it is located. Because for the most part, you're going to be dealing with the provider that your employer has in place. So if you don't know what a provider is, a provider is just a bank or a brokerage that actually holds your 401K. So you can think of some companies have Vanguard, Charles Schwab, Fidelity. But there's also a bunch of other 401K providers that are not as common. And we don't talk about them on this podcast as much. But you want to find out who that 401k provider is by contacting your old employer. The second way that you can do this is you can look for old 401k paperwork. And one way to do that is to go through some of the old mail. Maybe you have some old

Starting point is 00:04:34 files available where you can go through some old 401k paperwork. One way to find that. One way to find this is if you go through something like TurboTax, maybe you have some paperwork there available, or look at some of your old tax files and maybe they're there also. But just looking for paper is not the only way that you can find this. You can go through some of your old emails. If you have access to your old work email, you can check through there. Or if you don't have access to your old work email and you set up a secondary email, check through your emails and see if you can find who that 401k provider is, because you really need to hunt this down so that you can figure that part out. Your employer should be the number one place to find it.

Starting point is 00:05:09 If you really don't want to talk to your employer, you can find it another way, which I'll give you a third way in just a second. But your old employer is the fastest way to get to this point. It's the fastest way to figure out exactly who runs your old 401k so that you can get access to that account in that money. And think about it this way. Is it worth thousands of dollars for you to talk to your old employer just so you can get your money back?

Starting point is 00:05:29 It absolutely is in most situations. So you want to make sure that you can figure this out and find who has your old 401K. The third way is there's a website. called Capitalize. And Capitalize actually has a 401k lookup tool. We'll link it up down below and we'll put it in the PDF as well where you can go and find your old 401k and they'll kind of help you find where it is by searching for your name, maybe given some personal information, your date of birth, address, those types of things. That way you can go through and find exactly where that old 401k is. But these are the three options that you have because you have to be able

Starting point is 00:06:01 to find your 401k before you can even get started thinking through some of these options and then going step by step into this process. So make sure that you call your old employer, then look for old paperwork. And if that doesn't work, then use that capitalized lookup tool. And eventually, you'll be able to find it. One of those three ways will help you find that old 401k. And then you can go through these three options that we're going to talk about next. All right. So once you have found your 401k or you already know where it is and you are just transferring to a new job, you have a couple of options here. And I'm going to go through four options on exactly what you can do. The first one is going to be the worst option of all.

Starting point is 00:06:37 I really don't want you to do this. But the first one is you can withdraw or cash out your 401k savings. For 99.9% of people, you should not do this. Why? Because you never want to touch your retirement accounts. Why do we never want to touch our retirement accounts? This is twofold. One of which, and this is actually the biggest factor, and it's the most expensive factor of all,

Starting point is 00:06:56 is you never want to interrupt compound interest unnecessarily. You want to have your dollars invested. And if you interrupt compound interest unnecessarily, then what's going to happen here is you are not going to have very much money by the time you get to retirement. People who dip into their 401k savings all the time never have enough money when they retire. That is an activity for people who are broke. And the way, what you do not want to do, unless there's a major emergency in your life, you're facing foreclosure or you're facing something where you just absolutely have to. The only reason to do that is to really say for a dire need

Starting point is 00:07:29 of something where you have to get out of a really bad situation. That is the only time to touch your 401k. Outside of that, the only other reason to do this is because you need it in retirement and to draw down cash on retirement. But if you're under the age of 59.5, there is no reason in this world outside of facing really major financial disaster that you need to be touching your 401K because interrupting compound interest unnecessarily will cost you hundreds of thousands of dollars by the time you retire if you do this. You need to understand this here. You need to understand this math because if you've been prone to touching your retirement accounts in the past and a lot of people do, I talk to all

Starting point is 00:08:05 sorts of people who have touched their retirement accounts for stupid reasons, to be honest. I'm being frank here. Let's get real. Most of the time, that reason is not necessary. Maybe you want to upgrade and buy a house, for example. That's not a reason to touch your 401K. Maybe you want to go out and you think you need to get out of $5,000 with a credit card so you touch your 401k. That's not enough reason. Instead, what I would do is reduce my expenses and pay it off with the amount of money that I'm living on every single month. But this is one of the reasons that people touch it. The second reason is if you touch your 401k early, you're going to be paying a 10% penalty by doing so. And you're going to be paying taxes on that money as well. So whatever your

Starting point is 00:08:41 current tax rate is, you're going to pay taxes on that money, which is going to take a major hit. And you're going to face that 10% penalty. And a 10% penalty is massive, depending on how much is in your 401k. Every $10,000, you're facing a $1 penalty in addition to taxes, which your tax rate's going to be anywhere from 15 to 30%, depending on what's going on there, inside of that 401k. You do not want to do this because you didn't pay taxes on that money, and Uncle Sam is going to want their money when you pull that money out of the 401K. So withdrawing or cashing out is one option.

Starting point is 00:09:11 It's the worst option available. You can hear it in my voice. I do not want you to do this unless you really need the money or you're in retirement and you want the money to draw it down. That's the reason why we save this money was to draw it down in retirement. That's a different story. But if you are under the age of 59.5,

Starting point is 00:09:26 there's no reason for you to touch this money. Option two. Option two is to roll over your 401k into an IRA. Now, this is the most common option. And I'm going to give you step by step on how to do this later on in the show. And that PDF is going to show you as well. So make sure you grab that PDF down below. But this is going to give you access to rolling over your 401k into an IRA. Now, when I left my last job and started working as an entrepreneur, this is what I did. I rolled over my 401k, and I rolled it into a Vanguard IRA. Now, there's a bunch of brokerages out there that I love. I love Vanguard.

Starting point is 00:09:57 I love Charles Schwab. M1 finance is fantastic. And I also love Fidelity. So those are the brokerages that I really truly like out there. And this is an option as well. But this is the most well-known way to do this. And according to the IRS, over 5 million people roll over their old 401k into an IRA every single year. And they transfer $500 billion total every single year. So this is a very common thing to do. Now, rollovers are tax-free if you're going to do a roll-over 401k into a rollover IRA. Now, there's a couple of options you want to consider here. If you are rolling over a traditional 401k, then most likely you want to roll it over into a traditional IRA. If you're rolling over a Roth 401k, then you want to roll that Roth 401k into a Roth IRA.

Starting point is 00:10:44 So you want to follow that structure to roll it over so that you don't have tax implications or other things that are going to happen by doing so. Now, if you have heard our episodes, we talk about Roth conversions. We have an episode talking about the Roth conversion ladder, for example. If you want to do that and you understand the advanced tax strategy behind that, then you can go 401k to Roth IRA. But the issue with that is, is you're going to be paying taxes. So you need to understand why you are doing that before you do it. If you haven't heard that episode, you can check that out. It's called the Roth conversion ladder.

Starting point is 00:11:14 We'll link it up down below so that you can check that episode out as well. But I'm going to give you the five-step process on step by step on how to do this at the bottom of the show here. And in addition, if you want to check that out, you can go check that out now as well. Now, there's a bunch of questions that I get when we talk about rolling over to our 401K. The first one is, does a 401k roll over count as a contribution? I just got this question on Instagram very recently at Master Money Co in my DMs. And if you change job and roll over a 401k to an IRA, it does not count as a contribution for that year. So you can still max out that IRA if you have an IRA open because you want to max it out.

Starting point is 00:11:51 It does not count as a contribution. You can roll it over into that rollover IRA and it will not count towards your limit. for that year. So that is the major thing to note here. It does not count as a contribution. If you have a Roth 401k, you want to roll it into a Roth IRA. If you have a traditional 401k, you want to roll it into a traditional IRA in most situations. Now, if you want to figure out which one should I do based on my tax situation, a tax strategist can look at your personal situation and tell you exactly what to do. That's one of the most valuable things that your accountant or tax strategist can help you with. And we'll have a future episode coming up on how to find an accountant or tax

Starting point is 00:12:27 strategist so that you understand what the best things are to look for, but they can truly help you with these type of decision. That's why I absolutely love having this, and they are some of the best money that you can spend every single year. Now, the third option is you can roll over your 401k into your new company's 401k or another 401k. And here is where you want to consider this situation. If you roll it over into a 401k at your current company, the only time to consider this is because you want to simplify your accounts is number one. Number two is because you love the investments there. You have to love the investments at that new 401K. Number three, they have to have low fees at your new 401k. And number four is that you think you're going to stay with that company for at least a couple of

Starting point is 00:13:09 years. Because between those four things, we're going to break these down. But between these four things, you have to have all four of those if you want to roll it into the new 401k. Why? Number one is you have to like these investment options. Otherwise, it is much better to roll it over into a rollover IRA where you can exactly what investment options are available. Why does this matter? Because most 401ks, let's get real here, have crappy investment options. And a lot of them don't even have index funds inside of there, which is, you know, I absolutely love investing in index funds inside of a 401K. So this is something where you've got to look at what are the investment options here? So they have only target date retirement funds that have really high fees. If the fees are really high, then all you really want

Starting point is 00:13:48 to do is get that employer match and then invest into other vehicles. So that rollover IRA is going to be something that you definitely want to consider. Now, some people may say, well, wouldn't it compound faster if all the money is combined together? That's not how compound interest works. So if you combine all the money together inside of one account, it is not going to compound faster. And a lot of people think that that's a big myth that we're going to debunk here, but you got to understand. That's not how compound interest works. And so it doesn't matter if it's separated or all in one account. You don't need to keep it all in one account. The next thing is you want to stay at that company for a long period of time because if you're not staying at that company for a long period of time,

Starting point is 00:14:25 it's going to be a headache to move this money all over again. So if you don't plan on staying there for a long time, all I would do is get that employer match and then have that roll over IRA available. And you got to check the fees. If the fees are really high somewhere, say for example, they have a Vanguard index fund. And you want to invest in something like VTSAX, for example. One of my favorite things that I have in my 401k is VTSAX, which is the Vanguard total stock market index fund. Well, if you have VTSAX and they're charging, say, half a percent inside of your 401k, but you can go get VTSAX for 0.04% inside a Vanguard. And that is another fantastic reason to go towards the rollover IRA instead of going to your new company's 401K as well.

Starting point is 00:15:06 So consider all of these four options before you really think through, should I really roll it into your new employer's 401K? It's not very common that people actually do this. So understanding that the rollover IRA is much more common because you can control it and it's much more flexible than your new 401k would be. And it's also full. faster to do the roll over IRA as well than it would be to roll it into your new 401K. And then option for, and this is not the option that I would go for unless you really, really love the investment options, is to leave your 401k in your former employer's plan. The reason why I wouldn't want to do this is because you have way more control if you roll it over

Starting point is 00:15:41 and just pull it out. And in addition, you don't have to go through your old employer to get access to certain things. Instead, you can just have it within that rollover IRA. But some people do this. Some people leave their 401k with their old employer. And you can do this, but it's much more optimal to have it in something like a roll over IRA. And ultimately, most people don't want their money tied to their old employer as well.

Starting point is 00:16:03 They've moved on. They want to move on to the next chapter of their life. They want to move on to where they can have their money in a place that they can control. They can access immediately. So that's the fourth option as well. So you can tell there's one I lean towards out of all of these more than the other. The worst one, though, is number one, is trying to draw it and just take the cash out of your 401K. that's the last thing you want to do.

Starting point is 00:16:22 That's the worst one by far. The second worst, in my opinion, is just leaving it with your old employer. The second best would be to roll it over into your new employer's 401K, and by far the best, I think, is to roll it over in the IRA. That's just my personal opinion. You can look at your own personal situation and see what you think as well. But in the next couple steps here, I'm going to talk about how you can roll over your 401k into a new IRA. So lately, I've been noticing how fast things are changing.

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Starting point is 00:19:49 Find your advisor at IGPrivatewealth.com. All right. So we are going to go through the 401k rollover guide. Now you can get this guide down below in the show notes. You can download this guy completely free. This is step by step on exactly how to do this. Or if you know somebody who is looking to figure out what to do with their old 401K, send them this guide so they have it available to them.

Starting point is 00:20:12 I'm taking you literally step by step through it. And I'm giving you the scripts. on exactly what to say when you call the old 401k provider so that you can put it into your new IRA. So this will only take 30 minutes to an hour to complete the whole process. So after you go through this, you're going to understand this is exactly how I can go through this. So the step one is to confirm some key details on your old 401K. So the first thing you want to figure out is obviously who is your 401K provider.

Starting point is 00:20:39 So if you take those steps that we talked about early on in this episode and go through those to figure out who your old 401k provider is, once you have to figure out, have that information, this is going to be really important going forward as we go through this. Now, 401k paperwork can be confusing. So really, you can call your old HR department or just look for some of your old statements. It's going to be the name of the company up top. You could think of Fidelity, Vanguard, Charles Schwab, those types of companies typically are who holds your old 401K. Now, the second thing to look at is do you have a traditional 401K or do you have a Roth 401K? Now, there's a difference between the two of these and you really need to know this so that you know how

Starting point is 00:21:15 to roll this over. So a traditional 401k is what the majority of Americans have. I think it's only 12% of people actually have a Roth 401k within some of these employee sponsored plans. For me, I love Roth 401Ks, by the way, so we'll have an episode talking about that. But for the traditional 401K, most people are going to have the traditional. And this is important to note because that's going to tell you what other IRA you need to open so that you can roll it over. So you can look at your statement and just see, do I have a traditional 401K or do I have a Roth 401K? Now, the difference between the two of these is basically on the front end, how you're taxed. With a traditional 401k, you don't pay taxes when you put the money in, but the money grows,

Starting point is 00:21:54 and when you pull the money out, you pay taxes. With a Roth 401k, you're putting money in that's already been taxed. It grows tax-free. You can pull the money out tax-free, which is why I love the Roth 401K. But the difference between the two is massive so that you understand if you need to pay taxes or not on that money when you transfer it over. So Roth to Roth is how you're going to transfer it or traditional to traditional, which we'll get into here in a second.

Starting point is 00:22:15 And then the third thing you want to gather up front here so that you have these key details when you make this phone call is you want to know your bank or your brokerage phone number. And the reason why you need this phone number is you need to call them. But in addition, you just look for the provider and look for their phone number up top. Now, within this guide that we have in the PDF here, I also list out some of the steps for various providers like M1 Finance, Charles Schwab, Fidelity, and Vanguard. So I have those steps in there as well, which the phone number will be on those steps. so you can find that in the PDF as well. Now, number two is you've got to decide where you want to move your hard-earned dollars. So you're going to have to open up your new IRA before you make this phone call.

Starting point is 00:22:54 The reason for this is it's the same reason as when you move from a house. Maybe you move from apartment to apartment. You have to have an apartment to move into before you actually move out of your apartment. The same thing goes for when you roll your money into a new IRA. If you're going to roll your money from a 401k to an IRA, you have to have a place for that money to go before you start rolling over the money. So we're going to open it up. So if you have a traditional 401k,

Starting point is 00:23:19 then you're going to want to most likely open up a traditional IRA. This means that you won't have to pay taxes when you transferred over. So it'll be a rollover IRA. Now, you can do it at any of the brokerages we just talked about, Vanguard, Charles Schwab, M1 Finance, and Fidelity. Those are the four options that I love. Or you can go wherever else you want. But those are the four that I absolutely love.

Starting point is 00:23:37 I did mine personally isn't in Vanguard currently. And so that's a great option as well. Now, the IRA is a traditional retirement account. It has the same rules as a 401K, except you just can't contribute as much. So when you're going to do the rollover IRA, you can either open up that traditional IRA if you have that traditional 401K. Now, if you have a Roth 401K, like we talked about, you're going to open a Roth IRA. Or if you already have one open, you can open a rollover Roth IRA so you can go through those options as well. The way you open these is you just go online to the website and you say, hey, I want to open up a rollover IRA,

Starting point is 00:24:10 or I want to open up a rof IRA. You could take the steps that the website shows you. So if it's Fidelity, for example, just type in Fidelity, rollover IRA, and then you can open up one there. Or you can even call them and they'll walk you through the steps. If you're really unsure, they will walk you step by step through the process if you want to call them and talk them through with it as well. But it's pretty easy online to go through that.

Starting point is 00:24:30 If you don't know how to do that, there's also some awesome videos on YouTube as well, and we'll create some for you here coming up. Now, like I said, most people do this. They roll it over to the IRA for these three reasons. is that you're not tied to your old employer, you have better investment options, and it's a faster process. Those are the three reasons why you want to do this roll over IRA instead of doing some of these other options. Now, in the guide, you will also see that we have like, you know, what type of IRA you should open. So if you're confused on Roth to Roth or traditional

Starting point is 00:24:58 traditional, we break it down on that guide as well. But really, it's just Roth to Roth, traditional, traditional. All right, step three is going to be contacting your 401k provider. So your old jobs 401k provider is who you're going to contact. Now, The easiest way to do this is by phone. And that's why I'm giving you scripts in this guide, because this is by far the easiest way to go through this process. If you do it online, it can be tricky at times for some of these brokerages just are not the most modern websites in the world.

Starting point is 00:25:23 So they don't really help you through the process. So just calling them up is one of the easiest way to do that. That's what I did. And I just set aside like 30 minutes in your calendar, go through this process, get it over with, and then it's done. Now, usually it only takes 10 minutes once you're on the phone, but you just want to give some extra time in case you're talking to somebody on phone there. Now, what you want to have handy when you have this phone call is you want to have

Starting point is 00:25:44 your 401k statement handy that you found from earlier or that you got from your old employer. And if you don't have it, it's not an issue, but they're just going to ask you for some personal information like your social security, your address, those types of things. And before you do this call, make sure you log into your new IRA or your new Roth IRA so that you can have that information handy as well. And you want to have your new IRA's number. You want to have your new IRA's mailing address because what they do is they mail a check to your new IRA provider so that that money can be contributed into that account. And you also want any other check related instructions. So if you want that money to be transferred to your new IRA provider, you just want to ask them

Starting point is 00:26:24 when you set up the account what their check related instructions are, like where do they want the check mailed to and if there's any other instructions that they need. And then you want to place the call and you want to go to this process and be prepared to ask them. Now, you can use this script that we have below because you want to do a direct rollover to that new IRA and that will give you the exact language on exactly how to do this. But you're going to tell them, hey, I want to do a direct rollover from my old 401k to a new IRA. Can we go ahead and go through this process and the script is there so you can have that ready for you as well? Now, what is a direct roll over? I'm glad you asked. So a direct rollover, all it is is when your funds are rolled over directly to your new IRA

Starting point is 00:27:04 provider. That's all that means. It's very simple. So basically your old 401k provider is going to roll all the money that's in that 401k into your new rollover IRA. That's all that means. That's all they're doing. It's going directly to them. The other option, the second option, is that they send it directly to you to your house and then you have to send it to your IRA provider.

Starting point is 00:27:24 But if you don't do this right, you are facing that 10% penalty. And it's just an extra step that you don't really want to do. So we'll talk about that in step four here as well. But that's the other option. And some people won't allow you to actually do the. direct rollover. Most will. So if your 401k provider doesn't allow you to do it, they must be old school or they just had data breach that's happened in the past. But at the same time, sometimes they don't. So step four is to finish any last transfer steps. And so when you go through this, if they don't

Starting point is 00:27:51 allow you to do a direct rollover and they need to send it to your house and then you have to send it to the new brokerage, then you can follow those last couple of steps as well. Like I said, some 401K providers just do not do this. I don't know why they need to get with the times. But a direct rollover is that much easier as well. So these are the steps that you need to follow. It's going to take you 10 minutes on the phone, 30 minutes total, max if you have to wait on hold or something like that. But at the same time, download this PDF.

Starting point is 00:28:17 It'll kind of walk you through the steps. You can just check it off on exactly what you need to be doing. And that's why I made this PDF is so that you have this available to you and you can just kind of follow through with the process so that you have that available. And if anybody else is looking to do this, make sure you share it with them as well so they can go through that process. And then we also included links into this guide for M1 Finance Fidelity, Vanguard, and Charles Schwab on how to roll over an IRA to those various brokerages. And so if you wanted some additional information, we got links for those as well inside of that PDF.

Starting point is 00:28:47 So really excited for you guys, check that out. Now, if you guys have any questions, make sure you hit us up on Instagram or TikTok at Master Money Co. And follow us on Spotify, Apple Podcasts, or whatever podcast player, you love listening to this podcast. soon. If you want to help out the show, leave a five-star rating and review on Apple Podcasts or Spotify and share this episode with a friend. We appreciate you guys sharing this show. That's how this show grows. And that's how we can teach more people how to build well is by you guys share. And I appreciate each and every one of you guys that have no idea how much I appreciate each and every one of you. And I can't thank you for leaving those five-star

Starting point is 00:29:20 reviews as well. I read every single one of them. So I absolutely love reading those. Thank you so much for leaving those five-star rating and reviews. We're trying to get to a thousand reviews. on Apple Podcasts by the end of this year. I think on Spotify, we have two and a half thousand or something like that. But on Apple Podcasts, we are behind on some of the rating and review. So we want to get to a thousand by the end of this year. So if you could leave that rating and review, that would be absolutely amazing. Thank you guys so much for listening to this episode. And we will see you on the next episode.

The Personal Finance Podcast - What to Do With Your Old 401(K) (Step-By-Step!)

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