Benefits of consolidating 401ks

Even if you’re diligently saving in the 401(k) plan you have at work, are you giving the same attention to the old 401(k)s you’ve left untouched when you changed jobs, or even retired?

When you leave a job, you typically have the option of keeping your money in the employer's 401(k) plan, or you can move it to an individual retirement account (IRA).

Most people do the former—nearly 90 percent of money that is eligible to be rolled over remains invested in a company plan, according to Alight Solutions, a benefits administration provider.

“There are often no benefits to leaving the money in a plan, and there can be plenty of pitfalls,” says certified financial planner John Gajkowski, a co-founder of Money Managers Financial Group, an investment advisory firm in Oak Brook, Ill. But if you want access to other market niches—say small-cap stocks, emerging market stocks, or real estate investment trusts—an IRA may allow you to invest in thousands of funds and ETFs, as well as individual stocks and bonds. If you work for a Fortune 100 company, chances are your plan’s large size delivers a valuable economy of scale: rock-bottom annual expense charges on the portfolios offered in the plan.

Rob Austin, head of research at Alight Solutions, says there are three main considerations before deciding whether to consolidate 401(k) accounts: the investment choices, the fees the 401(k) charges and whether managing multiple 401(k) accounts in retirement would be difficult for you to handle. Most 401(k) plans offer a core lineup of portfolios that hit the major asset classes, such as U. That can make staying put in a 401(k) a viable option.

But Scott Puritz, managing director at Rebalance IRA, an investment advisory firm that specializes in retirement savings, says that if you’re not working for one of the behemoths, you are likely paying more than necessary.

“It’s not uncommon for companies with fewer than 1,000 employees to have annual fund expenses in their plan of around 1.5 percent.

You can do a lot better with an IRA rollover, ” he says.

At low-cost providers such as Fidelity, Schwab, and Vanguard you can invest in mutual funds and exchange traded funds (ETFs) that may charge significantly less.For example, the Schwab Total Stock Market Index fund charges an 0.03 percent annual expense fee.The Vanguard Total Bond Market Index fund charges an annual expense fee of 0.15 percent.Even if you’re investing a seemingly small amount, the lower fees can add up to big savings.A ,000 investment in a fund that has a gross (pre-expense) return of 6 percent would grow to nearly ,000 over 20 years if the fund charged a 1 percent expense fee.If the ,000 was invested in a fund with an 0.20 percent charge, it would be worth nearly ,000. “But when you have money spread across multiple 401(k)s it’s impossible to have a holistic approach,” says Puritz.

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