1324: [Part 1] What To Do With Your 401k When You Change Jobs by Kevin Ha of Financial Panther on Roth IRA

[00:00:00] This is Optimal Work Daily, Episode 1324. What to do with your 401k when you change jobs.

[00:00:07] Part 1 by Kevin Ha of FinancialPanther.com

[00:00:11] And hey there, I am your narrator, my name is Dan and I'm with you every single day,

[00:00:15] including weekends and holidays, reading from these great blogs on work-related topics.

[00:00:21] And today's post is on the longer side, so I'm going to break it up into two parts.

[00:00:25] I'll do the first half right now and then wrap it up for you in the Friday show tomorrow.

[00:00:30] So for now, let's get to part 1 and start optimizing your life.

[00:00:37] What to do with your 401k when you change jobs. Part 1 by Kevin Ha of FinancialPanther.com

[00:00:46] Now that I've recently changed jobs, I'm once again trying to figure out what to do with all

[00:00:50] of my old retirement accounts. Luckily, I've got a little bit of experience in this area.

[00:00:54] I've switched jobs twice in a little over a year, first leaving my big law associate position

[00:00:59] to work as a state attorney, then leaving that job to take a non-traditional attorney position

[00:01:04] with a branch of my state bar association. With my latest job change, my retirement savings

[00:01:10] are now scattered throughout a bunch of different retirement accounts held by my old employer.

[00:01:14] That's actually not that big a deal since I use apps to track my investments,

[00:01:18] but it still helps to think about what I should do with all of that money now that

[00:01:22] I have this new job. Today's post addresses that question. Note that for simplicity,

[00:01:27] I refer to 401ks throughout this post, but everything here applies to any retirement

[00:01:32] accounts you might have with prior employers, including 403b's, 457s, and certain types of

[00:01:38] pension plans. What should you do with your old 401k? 401ks are an interesting beast. When you're

[00:01:45] working for your employer, there's not a lot you can do. In general, it's just put money in,

[00:01:50] look for low-cost index options, and sit back and relax. Where things get interesting is

[00:01:55] once you leave your employer. It's like a switch gets turned on and suddenly you have a whole bunch

[00:02:00] of options in front of you. Most people, when faced with all these choices, do the same thing,

[00:02:06] nothing. That's what happened with my wife. She completed a one-year hospital residency

[00:02:11] a few years ago, started a new residency right after that, and simply forgot about

[00:02:15] the money she had saved in her 403b. To be fair, sometimes doing nothing is the right

[00:02:20] choice. But we want to be making our choices actively. You don't necessarily have to act

[00:02:25] right away, but eventually you do want to take action with your old 401k once you've had time

[00:02:30] to assess your situation. So what are some of the things you can do with that old 401k?

[00:02:36] 1. Leave it where it is. This is a pretty easy and straightforward option. If you have a good

[00:02:42] low-cost 401k with your old employer then it might make sense for you to just leave it where

[00:02:47] it is. Most 401k plans should have an option that will automatically rebalance your accounts.

[00:02:53] Just set it up to rebalance your account once or twice per year and you should be set. If you use

[00:02:58] apps to track your accounts, you won't even have to log into them to see how things are going.

[00:03:03] 2. Roll it over into a traditional IRA. A lot of experts blindly say to roll over your 401k

[00:03:10] into a traditional IRA whenever you leave a job. This has the nice advantage of giving you

[00:03:14] access to potentially cheaper and better investment options than what you might

[00:03:18] otherwise get through your employer-sponsored plans. However, if you're in a high tax bracket

[00:03:23] and want to maximize all of your potential tax advantage space, then this option might not be

[00:03:28] optimal. That's because in order to take advantage of a backdoor Roth, we'll need to leave all of

[00:03:34] our traditional IRA space empty. Whether you take this option will really depend on your current

[00:03:39] or anticipated income level and whether you have ways to get any money you put into a

[00:03:43] traditional IRA back into a 401k bucket. 3. Roll it over into your new employer's

[00:03:50] retirement plan. If you have a good retirement plan at your new job, then it'll often make

[00:03:55] sense to just roll over your old 401k into your new plan. In many ways, this is the simplest

[00:04:00] option. You'll have all of your retirement funds in one place instead of scattered everywhere.

[00:04:05] If your new 401k plan stinks, then obviously you won't want to do this.

[00:04:11] And 4. Other potential options for your old 401k. To be sure, the aforementioned choices

[00:04:17] aren't your only options. You could cash out your retirement savings, which I obviously wouldn't

[00:04:22] recommend because it's stupid. Another option would be to roll over your funds into a Roth IRA

[00:04:27] and pay taxes on the conversion. If you're saving aggressively, this probably won't be

[00:04:32] a realistic option just because of how much money you'd be converting. But it could be

[00:04:36] something you can do if you're converting a small amount into a Roth or if you're in a

[00:04:40] particularly low income year and can afford to pay the taxes. An interesting option that

[00:04:45] I've been thinking about is rolling over your old 401k into a solo 401k. Not all solo 401k plans

[00:04:52] allow rollovers from other retirement accounts, but some do. If you've been side hustling,

[00:04:57] you should have already created a solo 401k for yourself. It's the bonus retirement account that

[00:05:02] side hustlers get to have. I see the 401k to solo 401k rollover as useful for someone who's

[00:05:09] moving into a job that doesn't have a great 401k plan, has an old 401k that isn't all that

[00:05:14] great, and still wants to leave their pre-tax IRA space empty in order to utilize the backdoor Roth.

[00:05:21] Things to consider when deciding what to do with your old 401k. Hear that in tomorrow's episode.

[00:05:31] You just listened to part one of the post titled What To Do With Your 401k When You Change Jobs

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[00:06:40] And thanks to Kevin for sharing this post today. Kevin Ha is an attorney and the blogger behind

[00:06:46] Financial Panther, which is a blog about personal finance, travel hacking, and side hustling

[00:06:51] using the gig economy. Kevin paid off $87,000 worth of student loans in just two and a half

[00:06:56] years by choosing not to live like a big shot lawyer. Kevin is passionate about earning money

[00:07:02] using the gig economy. And you can see all the ways he makes extra income every month

[00:07:06] in his side hustle reports. You can find those and much more great content at financialpanther.com.

[00:07:13] But that does it for today here on Optimal Work Daily. I hope you enjoy the rest of your

[00:07:16] Thursday if you're listening in real time and that you'll join me again tomorrow for the

[00:07:20] second half of this post. And that's where your optimal life awaits.