3 Reasons Why I Always Roll Over My 401(k) When Leaving My Job

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  • When you leave a job, you can leave your 401(k) invested with your current employer.
  • You also have the option of rolling over your account.
  • I always choose to roll over my 401(k) whenever I leave a job.

Could 401(k) rollovers be the right move after leaving a job?

There are many different accounts that can be used to invest money for retirement. A 401(k) is one of them. Employers offer 401(k) accounts, and when you invest in one, money is taken directly out of your paycheck and contributed to your retirement plan. Employers often match contributions as well, which makes these great accounts to use since you get free money for investing in them. 

When you have a 401(k) and leave your job, though, you will have to decide what to do about the account. You usually can leave it with your current employer if you want to, even though you will no longer be working at the company. But you also have the option to roll over the account if you want. And every single time I've left a job, I've chosen the rollover option and moved the money into my IRA

Here are three reasons why I prefer this approach. 

1. So I don't forget about old accounts

It may seem hard to believe, but people forget about old retirement accounts all the time. This can happen easily when you switch jobs multiple times over the course of your career -- especially if you have only a few thousand dollars in a 401(k) account that you opened many years ago.

I don't want to leave my hard-earned money on the table by forgetting the account exists. When I roll it over into my IRA, I don't take that chance. Since I sign into my brokerage account regularly and see my IRA all the time, I'm always aware of where my money is and how much is invested for my future. 

2. So I get more flexibility in my investing options

While 401(k)s have great features, including the ability to automatically contribute to them, they have one big weakness. You typically have very few investment options within the account. 

With my past employers, the 401(k) accounts that have been available to me have offered me a choice of around a dozen funds or fewer to invest in. Many of the funds have had higher fees than I would prefer to pay. 

When I roll over 401(k) money into an IRA, though, I can invest in just about any asset my brokerage firm makes available. If I want to, I can hold individual stocks in my retirement account, which provides me with the chance to potentially earn much greater returns than I could earn through investing in a mutual fund or ETF. I can also shop around for ETFs with much lower expense ratios than the funds that were available in my 401(k). 

The ability to choose from a broader pool of investments is one of the biggest benefits of rolling over my retirement funds. 

3. So I can monitor my asset allocation 

FInally, I want to be able to keep track of all of my different investments easily so I can make sure I am appropriately diversified and exposed to the right level of risk. By rolling over my retirement accounts so all of my money is in one place, it's much easier to analyze the composition of my portfolio. 

For all three of these reasons, I think rolling over a 401(k) makes the most sense. Of course, everyone needs to make the decision that's right for them -- but a rollover definitely provides some benefits and is worth considering if you're leaving your place of work.

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