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Practical Planning Tip: Old 401(k) Options - What NOT to Do

March 06, 2024

One Question I get often is about 401k rollovers and it usually goes something like this: I left my previous employer and have an old 401(k) retirement account which I haven’t touched. I have received different suggestions on what to do, but I’m not sure what my best option is. What do you advise?

This is one of the most common, and also one of the most important, financial planning questions I receive. While the question referred to a 401(k), the same advice can apply to readers with all types of defined contribution plans such as a 403(b) or 457(b). All of these are an employee’s retirement account through an employer.

If you spent many years working for a company, it is possible that this pool of money is one of your most significant assets. Therefore, proper management of these funds is foundational to a successful retirement. In this series of videos I will outline some of the most important points to help guide your decision.

Let’s first discuss what NOT to do, namely: Do NOT move this money into a taxable account: This point may seem obvious to many, but I am astonished by how many sophisticated people tell me that after leaving their previous employer they moved all their retirement funds into their checking account. This is a HUGE mistake. That move is likely to cause the investor to pay taxes earlier than otherwise required and may also trigger a larger overall tax bill. It may also cause penalties if the funds were moved out before age 59 ½. In short: Avoid this approach!


You can WATCH the full video here.