More often than not, people start contributing to a 401k at one company and then they have to change jobs, leaving their 401k behind. Many people either forget about that 401k or are unsure what to even do with it. I recently was in this transition period and had to decide what I wanted to do with my prior contributions.
The two options that I considered were rolling the prior 401k contributions over to my new employer’s 401k or rolling it over to a Roth IRA. As you may have guessed from the title, I decided to roll this into a Roth IRA and I’m going to show you just how easy it was. For sake of the example, I’m going to assume you don’t already have a Roth IRA set up. If you already have a Roth IRA set up then go ahead and skip step 1.
Step 1: Choose A Financial Institution That Works For You
As with most things in life, you always want to consider your options. However, sometimes there are too many options and things can get overwhelming pretty quickly. My advice to you is to brainstorm the things that really matter to you in terms of investing. For instance some may want an account that’s ideal for beginners while others may want an account that has numerous investing options. A consideration like this can really help narrow down your choices in selecting the ideal institution.
Here are some things to research when considering what financial institution to work with:
- What kind of fees can I expect?
- Is this institution ideal for beginners or experts?
- How is the customer service
- What type of investment options are available?
- Will my funds be managed by a human or a robot?
- What is the institutions history?
Institutions Worth Considering
Here are few well regarded institutions that you may want to look into while doing your research:
What Financial Institution I Use
I personally use Vanguard as my custodian for my Roth IRA. I’m a big fan of Vanguard because they have very low fees, their website is easy to use, and their customer service is phenomenal. But as we’ve said before on The Wicked Wallet, personal finance is personal and each individual is different. A.K.A do your research and see what’s best for you.
Side Note: The financial institution you choose will be referred to as your custodian because they are taking “custody” of your funds.
Now that you’ve chosen the financial institution that you’re going to work with and have taken the steps to open an account, it’s now time to move onto step 2.
Step 2: Make a Phone Call
Now I’m sure all of this could get done without getting on the phone but I’m telling you it will be a much easier process over the phone.
When I called Vanguards customer support the phone call went something like this:
Vanguard Employee: “Thanks for calling Vanguard how can I assist you today?”
Me: “Hello, I’m looking to rollover my 401k into my Roth IRA can you connect me with someone who can help me with that?”
Vanguard Employee: “Of course, please hold while I transfer you.”
At this point I was transferred to a very nice fella named Jon who helped me through the rest of the process. He asked me a few questions and then we conference called my prior employers benefit center and Jon did 99% of the talking.
Jon told them why we were calling and was able to provide them with all the information that they needed to transfer my 401k funds to my Vanguard account.
In total it took me about 15 minutes to roll over my old 401k. The point I’m trying to make is that this process should be easy and painless. You can try to figure it all out without getting on the phone but I bet it will take more effort and time.
Now that you have initiated the transfer of funds it’s time to move onto step 3 and get the money invested.
Step 3: Make Sure the Funds are Transferred & Allocated
This step will probably vary depending on your custodian and prior employer. For me after I initiated the transfer of funds my prior employer told me that it would take 3-5 business days for the funds to arrive at Vanguard.
After 5 days my funds had arrived in my Vanguard account. It’s important to make sure your transferred funds are not just sitting in a non-interest bearing account and are actually invested. Depending on your custodian, the transferred funds may not be automatically invested so be sure to check.
If this is your first time investing in your IRA then you will most likely have to set up your investment strategy if you have not already done so earlier. Make sure you look through your investment options and decide which is best for you. I personally like total stock market funds because they tend to provide me with quality returns and should have almost no management fees. But again do what’s best for you.
Congratulations you have officially rolled over your old 401k into an IRA đŸ™‚ Was it hard? Nope. Did it take a lot of time and effort? Nope. Was it worth it? You bet!
Closing Thoughts
Rolling a 401k over is really easy and should be done asap. As you have seen the entire process is really easy and won’t take a lot of your time. Moral of the story, don’t be lazy and keep your finances in line:)
I hope you enjoyed this article!
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