Today’s Wisdom:
Starting a new job is an exciting life change that can bring about a lot of fresh opportunities, including the chance to begin new retirement account with the new employer. But what should you do with that 401(k) from your previous job? We’ll answer that question today along with another that recently came into the show.
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What You’ll Learn:
The pandemic has created a lot of turnover across the workforce as people choose to change careers and shift priorities. One of the decisions you’ll face when starting with a new employer is how to manage your retirement account from a previous job.
We had this question come into the show recently with someone wondering whether they should just roll that old 401(k) into their new company plan and take advantage of that option. So let’s talk about that a little bit on this episode of Money Wisdom.
It is true that this is an option you often have with a company 401(k) account, and it might make sense to consolidate them all into one place to help you better manage your portfolio. But one thing that you should keep in mind is that once you put money into that new 401(k), you might not be able to get that money out. It depends on the provisions in that 401(k) on what kind of access you might have.
Here at Johnson Brunetti, we are big fans of flexibility and control. Most times when someone leaves a job, we like to take an IRA and roll that old 401(k) into it. That gives you flexibility and control on how it’s invested and you can always fire us if you want. It’s important to remember that you aren’t the client in a company 401(k) like you would be in your own IRA, the company is the client.
A couple of other factors to keep in mind when making the decision is what will the costs be? Will there be fees associated with transferring the money or moving into a new account? Plus, will you be getting in help or advice in one account or the other? These are just some of the considerations but your financial advisor can help you walk through what’s best for you.
The other question we got recently was what should you do with the extra income that you want to save. This one came from someone working with a tech startup that’s enjoying a lot of success so big bonuses are common and they have already maxed out retirement savings for the year.
Believe it or not, we’d suggest spending some of that money you’ve earned. Buy some things you need or take a trip you’ve been wanting to take. But after that, let’s talk about where to save some of this extra money. Tech is a very volatile industry. When things are going well, it can be a very lucrative position to be in, but things can change quickly in the tech world and there might be some big down years. So are you prepared if that happens?
Setting up an investment account is a great way to set aside that extra income and gives you a could chance to grow your money by 7-10%. That might not seem like a lot but it can really add up over time and gives you the safety of being able to access it if you ever need the money.
As always, we encourage you to take advantage of our Money Map review process to answer questions like these and help get your financial future on the right track.
[0:20] – Fact on IQ during stress
[2:05] – Mailbag question on what to do with extra savings
[4:18] – Mailbag question on rollover 401(k)
[6:18] – Money Map retirement review
Thanks for listening to this episode. We’ll be back again next week for another show.
Final Thoughts:
“You want to say, ‘What if? What if this doesn’t make me rich?.’ Can I keep from being poor by setting some money aside, almost like an insurance policy but it doesn’t cost you anything because you’re putting the money somewhere where you can get to it if you need to.”
– Joel Johnson
3 Related Items & Resources
- Dangerous Mindsets for Financial Planning
- Questions to Ask During Difficult Markets
- Should You Be Saving 15% of Your Income?
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