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How to Consolidate Your 401(k)s in to an IRA

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There’s a better than average change that you won’t spending your entire adult life working for the same company. Although the BLS wants us to know that the average worker holding seven careers in a lifetime is a myth, it’s possible and even probable that you won’t work for the same company forever and because of this, you may end up having more than one 401(k).

If you’re the hands off kind of investor, keeping these 401(k) accounts as they are, scattered with different investment institutions is allowable but probably a bad idea for a few reasons. First, they’re hard to manage. Just keeping track of a checking and a savings account is hard enough for some people who are constantly on the run. Second, since you’re limited to only a small offering of mutual funds, you can open up the amount of products available to you by consolidating these 401(k)s in to one IRA account. Here’s how.

Step 1- Collect Your Data

You’re going to need all of the contact information for the investment institutions holding your 401(k) accounts. This includes user names and passwords for each. This may involve contact the HR department of your old employer if you haven’t held on to any statements.

Step 2- Open an IRA

If you need the help of a financial adviser to manage this account, speak to them before opening an account. If you plan to do it yourself, look for companies that offer no cost IRAs. Scottrade, as well as others, offer a no cost IRA and some even give you money when you open the account. Often you can set up these accounts online in about 10 minutes.

Step 3- Do the Conversion

Contact each holder of your 401(k) accounts and complete the appropriate transfer forms. Understand that there may be transfer fees involved with the transfer. If the fees are due to only having the IRA for a short period of time, transfer the accounts that you’ve had the longest and let the newer accounts stay where they are until enough years pass to significantly lower or eliminate the fees.

Step 4- Get Help

If you’re not as financially literate as you would like to be, get help from a fee only financial adviser. They can help you put together a proper asset allocation with the lowest possible fees. Because of the large amount of investment products available in an IRA versus a 401(k), putting together a low fee portfolio is much easier in an IRA.


If you don’t want to have to manage the money in an IRA, often you can transfer the funds from other 401(k) accounts in to the 401(k) plan you have with your current employer. It’s rarely a good idea, financially or logistically, to have multiple accounts so even if you leave this employer at a later date, it will be a lot easier to transfer one account instead of two or more. Also remember that IRA accounts, just like 401(k)s, aren’t tied to an employer so if you change jobs, the IRA account will remain in tact.

Bottom Line

IRA accounts hold many distinct advantages of a 401(k) but make sure you contribute the maximum amount that your current employer will match in to your current 401(k). Never turn down free money.

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2 Responses to “How to Consolidate Your 401(k)s in to an IRA”

  1. David M says:

    “There’s a better than average change” Please change “change” to “chance”.

    People often complain about 401Ks but sometimes they have lower rates than mutual funds and people that take money from a 401K often spend it – thus – taking money out of a 401K is not a “no brainer” to me.

  2. DIY Investor says:

    Rolling over 401ks can be trickier than people generally think. For one thing, many 401ks allow penalty free withdrawals at an earlier age than IRAs. Secondly, company stock should sometime be transferred to a taxable account and not automatically rolled into an IRA, Not doing this could put a lot more in Uncle Sam’s pocket than yours. Thirdly, not transferring “in-kind” could put you out of the market for a period of time. Murphy’s Law predicts this will be exactly when the market takes off!
    If you are contemplating a rollover/consolidation and are a bit fuzzy on these points get professional advice.

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