A great thing about 401k plans are that most companies offer them.  Why this is good news for you is because if you decide to leave your current employer and your new employer has a 401k plan you will most likely be able to do a rollover 401k into their plan easily. Before this used to be a difficult process but with some recent government regulation changes it has become a lot easier to roll your money over.  Not only does this prevent you from having multiple retirement accounts all over the place but you don’t have to mess with the difficulties of managing all of your investments and making sure they are organized properly and performing well.

There are some benefits to a 401k rollover to a new employer as opposed to rolling over to an IRA.  This all depends on the options that are in your new employer’s 401k plan.  To invest in an IRA or single mutual fund in most cases you need a minimum investment.  So if you do not have a lot of money in your 401k it will be more difficult to diversify those funds. With a 401k rollover into a new employer’s 401k plan there are generally no investment minimums so it doesn’t matter the amount of money you have in your current 401k.  This means you can diversify a lot easier with a 401k and this is a big benefit!

As stated before there are some drawbacks with a rollover 401k into a new employer’s 401k investment plan.  The main drawback is that you have limited mutual fund investment options.  You are basically stuck with the investment choices that your company selected so there isn’t a lot of flexibility. You won’t have access to any of your funds unless at some point you want/need to take a loan from your 401k, if this is even permitted by your company, or your employment with the company is terminated.  Another drawback is that you could be paying higher fees with a company 401k plan as opposed to an outside plan.  Often times the smaller the company the higher the fees.  Make sure to check out all this information when you get your 401k packet.

If you decide that a 401k rollover to your new employer’s plan is the best option for you, have your current 401k plan transfer your funds directly to your new employer’s retirement plan.  Once the proper paperwork is completed your money is moved directly to your new retirement plan and the money never crosses your path. This is a pretty seamless process and you will be back on your way to growing your tax deferred retirement savings without any interruption.  Ensure that when you directly roll over your 401k funds that you are following federal rollover rules and this will ensure no federal income tax will be withheld from you. Sometimes your old retirement plan will mail you a check and it will be made payable to the custodian of your retirement plan or the trustee.  If you receive a check like this don’t stress about it.  This will still be considered a direct rollover.  You just need to get the check to the institution acting as the trustee of your new retirement plan. If you are unsure of the best option for you or have questions about a direct rollover to your new employer, consult a professional for advice.