Can’t rollover my 401(k), so what do I do?

Hi Pete,

I find myself in a frustrating situation. I had a 401k plan with my old job. I started it a short time ago and have about $7000.00 in it. In the last few months I got a new job but stayed on at my old job as a per diem employee. So now I work 40 hours at my new job and maybe 8 or more hours a month (if that) at my old job. I decided to transfer my 401k over to my primary job. Unfortunately after contacting the 401k provider of my old job I was told since I was still employed with them (the old job) I could not rollover my 401k. Can’t cash it out (not that I wanted to). I can’t even take a loan if needed since it would have to be repaid through deductions on a paycheck which is now sporadic since I have a new 40 hours job. Essentially my money is stuck to earn whatever it will earn now. I can’t really add to it, roll it over or cash it out. I have no idea what if anything can be done. I don’t want to leave my old job since I can earn extra money from it. I hate to start over a 401k at my new job. Any advise would be greatly appreciated! Thanks for taking the time to read this.

Mike 

Hey Mike,



Thanks for your email. May I start-off by saying how glad I am this bothers you? It’s pretty easy to let something like this go unaddressed, and thus miss the opportunity to prepare for the future. I have good news for you. There is a workable solution, AND I get to dispel a very common myth.



Let’s begin with the myth. There’s nothing wrong with leaving your 401k alone. That’s not the myth. That’s the destruction of the myth. People are often urged to rollover their 401ks upon leaving a job, for several reasons. A rollover, of course, is the process in which a person transfers a employer sponsored retirement plan into an Individual Retirement Account (IRA). The rollover allows a person to keep the same tax status, choose the investments of their own liking, and take advantage of a few other marginal benefits. If left alone however, nothing bad happens. Nothing. It is not inefficient. It is not counterproductive. It simply sits in the old employer’s 401k plan, and does its business. It rises and falls with market activity, and your lack of new contributions doesn’t actually affect the money that currently is in it. I’ve often found that people think not adding to an old 401k makes the current assets of the 401k less valuable. This couldn’t be any further from the truth.



You mentioned the idea that you felt you would be “starting over” by starting a new 401k at your new job. That’s not exactly true. Sure, you’d have to open another 401k account, but who cares? For a moment, let’s say you were currently able to rollover your old 401k account, and then you chose to put $500 per month into your current employer’s 401k, which has a balance of $7,000. If the market didn’t rise a penny (0% rate of return), and your account only grew because of your contributions, then you’d have $13,000 at the end of one year. Don’t get distracted by the 0% rate of return. The return simply doesn’t matter for the point I’m trying to make. You can’t rollover your 401k right now, so let’s explore what will happen. You will leave your $7,000 alone, and then you will add $500 per month to your new 401k. The aggregate balance at the end of 12 months? $13,000. In other words, there is absolutely no reason to have negative feelings toward your current inability to rollover your old 401k. It doesn’t matter. No matter what you do, you’ll have $13,000 at the end of 12 months.



I have lots of different investment accounts. They all serve different purposes. I don’t get bent out of shape if one account only has $6,000 in it while another has $7,000 in it, because together they are $13,000. The division of the assets as absolutely zero bearing on the rate of return, growth, efficiency, or quality. So, it’s all good. Start your new 401k, leave your old 401k alone, and watch the aggregate balance grow as market activity and your deposits do the work.



Pete

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