Multiple, non-vested retirment funds...what to do?

lsud00d

For those that "job hop" more often than not, what do you do for your retirement fund? Do you have an IRA? Do you have employers with no- or short-vesting terms?

I'm not sure what the next few years hold and at this point I have several independent 401k's floating around, none of which are vested. If I cash out I believe they will be worth less than I put in, so I think the best plan is to open an IRA and roll the 401k's into that to avoid most (if not all) of the fees if I did other things.

Does anyone have similar experiences? Looking forward to some advice on the issue.

Also I can't edit the title but retirement is misspelled

paul78

Good question and its a good point to consider when job-hopping.

Any unvested employer contributions that you may may been entitled is likely gone when you left the company. But your own contributions are yours. I would strongly urge that you DO NOT liquidate your 401k accounts. The tax penalty can be quite steep.

What I have always done is to maintain a separate 401k rollover account with my favourite brokerage firm and rollover 401k if I leave an employer. I usually do this within 3 to 6 months of leaving an employer. I do this for many reasons. 1) it lets me control my investments 2) It consolidates accounts and makes it easier to manage 3) the previous employer could go through a corporate action and it will make it difficult to access the account.

Check with a broker or certified tax advisor, but I would not roll over 401k into an IRA; open a separate 401k Rollover account instead. And be sure to transfer the funds using a 401k transfer mechanism otherwise, you lose your tax advantage. Mixing pretax and posttax contributions into a single account could be a hassle when you retire.

ptilsen

In short: Rollover to your new 401(K) using the appropriate mechanism. Do not cash out. Do not roll over to IRA unless you don't have a current 401(K). Whether you are vested now doesn't affect your decision.

I chose not to rollover my previous 401(K) because I'm happy with the company holding it and the funds it consists of. It is also a relatively small sum. However, if I were to leave a job again, I would probably rollover to avoid having too many accounts.

dave330i

I roll my 401k into an IRA. You have more investment choices in an IRA.

lsud00d

OK, a lot of good advice! Thanks for the ideas so far

I have a question about what y'all are saying because it's under the premise that you use your employer's 401k programs--why continue to do this and not start an IRA if the employer match is pulled at time of roll-over/pull-out??

Here's my scenario: I have 3 different 401k's. I want to stop using future employer 401k's under the assumption that I will not benefit from their matching program since I will not be staying with them for x years to be vested. I would like to centrally manage my retirement funds independent of my employer from now until I retire.

dave330i

lsud00d wrote: »

OK, a lot of good advice! Thanks for the ideas so far

I have a question about what y'all are saying because it's under the premise that you use your employer's 401k programs--why continue to do this and not start an IRA if the employer match is pulled at time of roll-over/pull-out??

Here's my scenario: I have 3 different 401k's. I want to stop using future employer 401k's under the assumption that I will not benefit from their matching program since I will not be staying with them for x years to be vested. I would like to centrally manage my retirement funds independent of my employer from now until I retire.

You're assuming you won't get to keep any of the employer matching. I've worked at several places where employer matching were immediately fully vested. Even if employer matching is vested over time, you don't know how long you'll be working for said company.

lsud00d

That is interesting dave330i, I haven't had the day 1 vested experience yet. I guess there's no standard vesting period? I just assumed it was 4-5 years as a loose average and given that I honestly don't know if I'll be at any place for that amount of time.

ptilsen

My employer is two years. My last employer was day one. To be honest, I wouldn't bother with an employer 401(K) if it takes more than two years to be vested. I mean, I'd contribute after I felt stable, but not right away. Too high a likelihood of leaving before being vested. I'd rather have the money now than saved pre-tax without a matched contribution. I'll make more in the future, and I'm nearly half a century away from retirement.

lsud00d

I see what you're saying ptilsen. What I anticipate doing is rolling the 401k's into an IRA and defer funds monthly to it so it can continue to grow as I work, independent of my employer, which is my overall plan.

Or should I roll the previous 401k to my current 401k, then roll that into an IRA? I haven't looked into the financial aspects of doing the 401k-->IRA move...

paul78

Having a vesting period is a retention technique used by some employers. I can't comment as to how widespread the practice is, but in 23 years, I have never worked for an employer with a vesting schedule for the 401k. I think that it may vary by industry. The more common practice that I encounter is a tenure period where you have to be employed x months (usually 12) before you become eligible for employer matching.

As for using an IRA for your existing- just make sure it the right type and don't mix pretax and posttax. I used the term 401k rollover account but some brokers may call them pretax conventional IRA or something like that.

Having your own account does give you more options for the 401k accounts at previous employers.

ptilsen

I would roll into current 401(K), then into IRA if I lost my current 401(K), but there are arguments for both ways. There's no question that an IRA gives you much more flexibility -- there's a big question if you'll use it.

If you'll be doing your own, you might consider a Roth or even a mixture. While Roth is after-tax money, it can be better if your taxes go up significantly in the future. Generally traditional is better, but not if you expect a big increase in salary. For example, if you anticipate going from $85K or less to $178K or more, you would have to do exceptionally well in terms of capital gains to actually see an inflation-adjusted, after-tax benefit to cashing out a traditional IRA. If you're just about done with rapid salary growth, an IRA might make a lot of sense for you.

Paul78: That's an interesting observation. My employer (and lsud00d's) may be an exception. I think that a vesting period makes more sense as a retention mechanism than an eligibility waiting period. If I have all these employer-matched contributions that I lose if I leave, I have a strong incentive to stay, at least a little longer. If I'm not yet earning those contributions, the potential simply gets absorbed into salary requirements for leaving. It's hard to walk away from $5K or $10K or $20K in non-vested contributions even for a raise, but easy to walk away from the potential for contributions for a raise.

paul78

Yes- I would agree with you that a vesting period would be a stronger incentive. I don't recall the exact reason for the eligibility requirement but I think it was mostly an expense reduction measure. There were plenty of other retention measure like vesting on other compensation.

Excellent point about the Roth- and I learned something new. I had not realized that the rules on Roth IRAs changed recently. It looks like a lot of caveats but definitely worth looking at regardless of anyone current salary. I will be checking it out more closely myself.