What to Do With Old Retirement Accounts (401k, 403b, 457b), Episode #38
It’s common to accumulate one or more old retirement accounts throughout your career. Perhaps you have a 403b from residency, another 403b from fellowship, and now a 401k with your current employer where you plan to stay. Regardless of how it happens, having old retirement accounts “floating” out there can be frustrating, not only from a logistical standpoint but also from the perspective of trying to coordinate and manage your overall financial situation. In this episode, we walk through your options for what to do with old retirement accounts. We cover the pros and cons of each and share the perspective you need to figure out which option is right for you.
Outline of this episode
- A common situation for physicians: multiple employer retirement accounts [0:31]
- What are your options with an “old” 403(b) or 401(k) [1:39]
- Transferring old accounts into your current employer’s plan [5:17]
- Old accounts can also be rolled into IRA accounts [11:45]
- Summarizing the options [15:35]
What happens if you leave old retirement accounts where they are?
The money is your money (the vested portion) and you could leave it alone until age 72, when you will have required minimum distributions. The main benefit of this option is that you don’t have to apply much effort. That’s valuable in its own right for a busy physician. But there are many drawbacks. The first is organizational. We opt for simplicity when it comes to managing your finances. A larger number of accounts means more to keep track of and a bigger hurdle to staying on top of your financial life. This means it’s harder to coordinate your investments in light of your overall retirement strategy. You also won’t have the same selections within all of your accounts for investment options, which means you could potentially be handicapped in some regards.
Can you roll your old retirement accounts into your current plan?
There are rules involved in rollovers from one retirement plan to another, so you’ll want to confirm that your current employer allows rollovers in your particular situation. But in most cases you can do rollovers into current retirement plans. Keep in mind though, that a Roth account can only be rolled into another Roth account and pre-tax accounts can only be rolled into another pre-tax account. And then there are 457 plans, which are required to be handled in different ways. The main benefit of rolling old accounts into your current employer’s plans is that of simplicity. Your organization, consolidation, and strategy all benefit from having fewer total investment accounts. And not to be overlooked, you’ll spend less time managing your accounts.
In terms of drawbacks, there is some front-end work to get these transfers done as well as specific instructions you’ll need to make to your custodians. It needs to be done right. It’s also possible that the investment options in your old retirement plan are better and more beneficial than your new employer’s plan, so in that case, you’ll possibly want to leave things as they are.
Your old employer’s retirement account could be transferred into an IRA
Another option for your old retirement plan is to roll it into an IRA. In this case, you’re taking full control of your retirement account without your employer as the middleman. You’ll have a lot more investment options, like any other IRA account, and will manage it all yourself. This provides the best freedom and flexibility. You can also set up recurring distributions, etc. when the time comes. This option requires some effort upfront and that you already have an IRA account established in order to make the rollover happen.
- Download our guide: The Toolkit for Optimizing Your Finances as an Employed Physician
- Download our guide: The Financial Checkup
- IRS Rollover Chart
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