Personal Finance

I've had several job changes over the years and have accumulated multiple 401ks - should I merge them all together?

Rich Duprey

Published: December 10, 2024 11:35 am

We move around a lot, when it comes to our jobs. No longer do workers expect to be with a single employer for 40 years and retire with a gold watch and a pension. 

Data from the Bureau of Labor Statistics shows the average number of jobs a person holds in their lifetime today is 12.7, with younger people switching jobs more often than their older counterparts. To a certain extent,  that’s to be expected. Just starting out in the workforce, your first jobs are expected to be temporary as you gain work experience and move onto your career.

Yet career choices also change over time. The data shows people make about three or four career shifts during their lifetime. That means it’s quite likely we will end up owning several different retirement plans from different employers.

A Redditor on the r/chubbyFIRE subreddit is in just such a circumstance. Because he has switched employers several times over the years, he has three different 401(k)’s from different jobs and wants to know whether it is best to keep them separate or roll them all into a single account.

24/7 Wall St. Key Points:

• Because we are likely to switch employers several times during our lives, we may end up owning several different retirement plans.
• Determining whether to keep them separate or merge them into a single account depends on a number of factors unique to each individual.
• Consulting with a financial planner or tax professional can help navigate the benefits and disadvantages of each option.
• Also: Is your 401(k) optimized for your retirement plans? ^(Sponsored)

Deciding whether to keep your varioust 401(k) accounts separate or to merge them together depends on several factors including your financial goals, preferences, and the specific circumstances of each account. 

While I’m not a financial planner or tax professional, so these are my own opinions, here are some considerations for each side.

Keeping them separate

Better investment options. If one of your old 401(k) plans has better investment options, such as lower fees or access to unique funds, it might make sense to leave it there.

Lower fees. Some plans might have low administrative costs that are advantageous compared to rolling over into another plan or Individual Retirement Account (IRA).

Creditor protection. 401(k) accounts typically have strong federal creditor protections. IRAs may have less protection depending on state laws.

Merging them together

Simplicity. Merging your 401(k) accounts can simplify your financial management. Having all your retirement savings in one place makes it easier to track your investments and manage your portfolio. Consolidating them also reduces paperwork.

Cost savings. By consolidating your accounts, you may reduce administrative fees. Different plans can have varying fees, and combining them might help you save money in the long run.

Improved investment choices. If your current 401(k) or an IRA offers better investment options, merging could help you better align with your financial goals.

Easier Required Minimum Distributions (RMDs). If you’re nearing the age for Required Minimum Distributions (73 years old), consolidating accounts can make compliance simpler.

Future Contributions. If you plan to continue contributing to a new employer’s 401(k), it might make sense to roll over your old accounts into that plan for easier management.

Other considerations

Employer match on current plan. If your current employer offers a match, rolling over old accounts into the current one might simplify your retirement savings strategy.

Rollover options. ​​If you don’t like the choices in any of your 401(k) plans, you could roll them into an IRA, which often offers more investment options and flexibility.

Taxes and penalties. Be careful during rollovers to avoid taxable events. Direct rollovers (where funds are transferred directly) helps to avoid this. This can be a straightforward process, often done online or over the phone.

Historical employer benefits. Some plans offer unique features, such as access to institutional share classes, that you would lose by consolidating your accounts.

Plan differences. You may not be able to transfer funds between different 401(k) plans if they have different plan administrators or sponsors. This could limit your options for merging accounts. Always check with both plan administrators to confirm your eligibility and procedures before initiating a rollover.

Key takeaway

Merging your 401(k) accounts is often the best option, but not always. It can provide benefits like simplicity and potentially lower fees, but it’s essential to evaluate the specifics of each plan and your personal financial situation. If you’re unsure, consulting with a financial advisor can provide tailored advice based on your circumstances. A financial advisor can help you determine the best course of action based on your retirement goals.