Donna Genie advises viewers to roll old 401(k) accounts held by former employers into personal IRAs to avoid ongoing administrative fees, improve control and access, and consolidate investments for proper diversification. She illustrates with a scenario where identical investments in a corporate 401(k) earn less than in an IRA because participants implicitly pay plan administrative costs.
Do you have any old 401ks lying around in former employers accounts? If you do, you ought to move them out to your own account. Use the rollover techniques to roll those into an account that you control. Let's talk a little bit about why that's important. When a company sets up a 401k plan, they have to do a lot of internal testing on that. They have annual requirements to report to the Department of Labor. They have a lot of administrative costs that go into working that 401 plan. And guess who pays for those administrative costs? Ah, the participants do. So let me give you a scenario. Let's say that in your 401k with your former company that you worked with, you invested in mutual fund abc. And I had mine in my own IRA under my name. And I also invested in that same mutual fund and we had the same amount of money to start at the end of the year. We each get our statements and we sit down to dinner and we compare them. Whose account balance is higher? Are they the same? I'll let you know a secret. You they are not going to be the same. The one who is under the corporate plan will have made less money and have a lower balance than the person who has their own IRA under their own administration. And the reason behind that return on investment being different is the administrative fees that are underlying in those accounts. So if you want to maximize the amount of money that you earn on your retirement plans, get them out of those old employer accounts and put them under your own control. The other factor is that those are under an employer's control. So if you need emergency access to it, if you need to do something to it, reallocate it. Are you reviewing where that money is invested? Those things are going to be much more difficult to do under your old company's ties. Move all that money into one IRA or retirement account through your own business, have control over it and do the allocation correctly. Work with a financial advisor to make sure that you are properly diversified for your risk tolerance and that you don't have five straggling accounts laying at different places not knowing how bad your allocation is. You may be over allocated into some riskier things or into too many duplicate investments. So do yourself a favor, work with a financial advisor and get all of that money under one account that's under your own control.
