Changed jobs? Transfer your 401K. (10/19/2006)

My generation doesn't keep a job very long. I've read some reports that say the average time span a generation X'er will keep a job is under seven years. This is reason to believe that there are a lot of retirement accounts left behind once someone leaves a job.

It's important to stay on top of your retirement savings even though you and your previous employer aren't making deposits on a regular basis anymore. If you leave a 401K with a previous employer, it will continue to grow (or fall) with the investments you already have and you'll still be limited by the investment choices. The brokerage firm that services the company's 401K plan may charge you an annual fee if you leave your job.

There are several benefits of moving your 401K to another brokerage firm when leaving an employer. First, you'll have additional investment options. Typically, 401K plans sponsored by an employer are typically limited in your investment choices. Secondly, you would be able to continue to make regular contributions again. Even though your previous employer won't continue to match your contributions, it's still important to continue to save.

Now, how do you move your 401K? First off, once you move your 401K, it won't be called a 401K anymore, so don't ask your investment advisor to open a 401K for you. A 401K is considered a "qualified retirement plan". If you transfer it, you have to transfer it to another "qualified retirement plan" or the IRS will make you pay taxes on it and penalties if you're younger than 59 1/2 years old. Most likely, you'll be transferring your 401K into a traditional IRA.

You have 60 days from the time you remove funds from your 401K and deposit them to your new IRA. I would suggest letting the new IRA accountholder do the paperwork for you. They will have the official transfer request forms that will keep you out of trouble with the IRS. Any brokerage company can help you with your 401K rollover. Edward Jones, Vanguard, Merrill Lynch, etc. Try to simplify your life by picking a brokerage service that you already use or maybe your bank has a brokerage department that you can use. You can even accomplish the transfer online through Vanguard or Charles Schwab. If you're not 100% comfortable with the process, I would suggest sitting down with a brokerage representative.

By using a brokerage company to rollover your 401K, your investment options increase greatly. You may want to do some research regarding mutuals funds or ask your brokerage representative for suggestions. Some brokers are very good at offering investment suggestions and explaining the risks and returns. I also suggest "re-balancing" your IRA annually. "Re-balancing is the periodic review of your investments. You should make changes to your investments as necessary. For example, if your mutual funds are in the tank, you should probably move money into different mutual funds.

If you have multiple IRAs or old 401Ks laying around, I would suggest consolidating them. Your investments should remain diversified, but you only need one IRA. Having IRAs sprawled out across town is no way to keep your finances in order. Fees or charges at brokerage houses are minimal and there's no way to avoid them. Nobody is going to do this for free and it's worth the cost in most cases. If you have any questions regarding this topic, or any other topic, feel free to e-mail me.

Here's a great retirement calculator I found on MSN.com. http://moneycentral.msn.com/retire/planner.aspx
Play with some numbers and see if your current retirement plan will sustain you financially.