Check Your 401(k)

Every retirement plan needs to be updated at some point. Over time, the funds you invest in will perform differently, and your portfolio might become unbalanced. Also, you might realize you are paying too much in fees and want to move your 401(k). It’s always a good idea to check your IRA at least annually. If you’ve changed jobs, you should also track down whether you have a plan with a former employer that you’ve forgotten.

Steps

Rebalancing Your 401(k)

1. Check your current asset allocation. Find your most recent 401(k) statement and go to the company’s website. Most should allow you to review details of your 401(k) online by creating a username and password.
   • Print out the current allocation of your investments. For example, you might have 50% in equities, 25% in bonds, and 25% in real estate.
   • These asset classes grow at different rates, so don’t be surprised if the current allocation doesn’t match how you allocated your contributions. For example, you might have directed 50% of your contributions to equities, but because of how fast the stock market has grown about 60% of your account might be in equities.
2. Reassess your risk tolerance. You aren’t required to rebalance, and you should expect the market to fluctuate. Accordingly, you don’t need to rebalance if you have a long investment horizon. Instead, you can ride out the highs and lows. Nevertheless, you might want to rebalance if your risk tolerance has changed.
   • When you signed up for the 401(k), you might have taken a quiz to determine your risk tolerance. If you can tolerate high risk, you probably placed most of your contributions into equities, including foreign or emerging market stocks. However, if you have lower risk tolerance, you probably invested in short-term bonds, money market accounts, and certificates of deposit.
   • Take the quiz again, or schedule a meeting with a retirement plan advisor.
3. Change your future contributions. If you continue to contribute to your 401(k), you should decide whether you want to change your contributions. For example, if you want to reduce risk, you can contribute more to bonds or a money market fund.
   • Remember that changing your contributions won’t change the current balance of your account. For example, if you want to reduce your exposure to equities, you’ll need to transfer money out of that fund.
4. Transfer money between funds. Look at how much money is in each investment fund. For example, you might have too much in small cap equities. You can rebalance your 401(k) by moving money out of this fund and into a different fund.
5. Consider automatic rebalancing. You can rebalance automatically if you use lifecycle funds, which are also called “target date funds.” Over time, the allocation slowly changes to reflect a shift in focus from seeking growth to preserving principal.
   • You can choose a lifecycle fund based on its name. For example, a fund called “Fund 2040” is appropriate for people who anticipate retiring in 2040.
   • Of course, you need to do proper research before investing in a lifecycle fund. Find out the fees, historical performance, and risk level.

Moving Your 401(k)

1. Check your fees. You’re paying a variety of fees for a company to run your 401(k) plan, and these fees eat into your returns. Accordingly, you should review your fees to see that they are reasonable. Fees are particularly high for small business employees, because small plans are expensive to run.
   • Compare your fees to the industry average using BrightScope’s ratings directory. If you’re paying too much, then you might want to move your 401(k).
   • If you’re an ex-employee, then you might be charged higher fees than current employees, and you could save by rolling your 401(k) into an IRA.
2. Complain to Human Resources about high fees. You might be able to convince your employer to switch the broker they work with, which can lower your fees. Show HR your research showing how much you are paying in fees and point them in the direction of brokers whose fees are lower.
3. Check the variety of investment funds. Generally, a 401(k) offers limited options for investing. The average 401(k) offers only 20 funds. An IRA, by contrast, is like a brokerage account, so you have more investment options. Decide whether this is important to you.
4. Check if you can rollover the funds. You might be able to rollover a 401(k) if you left the job. In that situation, you can rollover the funds to an IRA. You might also be able to roll them over into a new 401(k), but you should check with the plan administrator.
   • There are many advantages to rolling over your 401(k). You can take advantage of the lower fees and greater investment options. Also, it will be easier to keep track of paperwork by combining retirement accounts.
5. Roll over into an IRA. You can rollover into an existing IRA or open one. Shop around so that the IRA has low fees and the invest options that you want. To transfer the funds, you should contact your 401(k) plan administrator and give them the details about your IRA. Ask for a “direct rollover.”
   • Always get a direct rollover so that the money never touches your hands and you don’t have to worry about taxes.
   • Consider whether a traditional IRA or a Roth IRA is right for you. For example, any contributions to a traditional IRA are eligible for an immediate tax deduction, and you’ll pay taxes when you withdraw. A traditional IRA is great if you’re in a higher tax bracket now than you anticipate at retirement. However, with a Roth IRA, you pay taxes on your contributions and receive distributions tax-free. A Roth IRA is ideal if you anticipate being in a higher income bracket at retirement.

Finding Old 401(k) Accounts

1. Make a list of where you’ve worked. It’s easy to forget about retirement accounts. Some employers automatically enroll you in them, so unless you are looking at your mail closely you might have forgotten whether you have an account. Write down every place you’ve worked in your life.
2. Contact your old employers. You need to call and ask them to check their plan records to see if you ever participated in their 401(k). Look online or in a phone book to find their number.
   • Be prepared to share your Social Security Number so that your old employer can look you up.
3. Call the plan administrator. Over the years, businesses close or merge with other businesses, so you might not know how to find your employer. In that situation, you’ll need to contact the plan administrator. Try to find an old statement with the administrator’s name on it.
   • If that doesn’t work, contact your old colleagues. Ask them if they have any information about the 401(k) that your old employer offered. They might be able to provide you with a phone number for the plan administrator.
   • You can also search for the plan administrator on a website like BrightScope.com or FreeErisa.com. Employers with 401(k) plans must file Form 5500 annually. You can search for your employer by name and get the contact information for the plan’s administrator.
4. Check the National Registry. If you’ve abandoned your retirement account, then your employer might be looking for you. Check with the National Registry of Unclaimed Retirement Benefits. You can search for free by using your Social Security Number.
5. Search the Abandoned Plan Database. The U.S. Department of Labor maintains a list of retirement plans that have already been shut down or are in the process of being shut down. You can search at their Abandoned Plan Database here: https://www.askebsa.dol.gov/abandonedplansearch/. Obtain the contact information for the Qualified Termination Administrator and call.

Sources and Citations

See also

• Make a Retirement Gift Basket
• Know How Much to Give for a Retirement Gift
• Make a Retirement Scrapbook
• Use Life Insurance in Your Retirement Planning
• Transfer Retirement Funds to a Roth Ira
• Start a Retirement Home in Ontario
• Retire from a Job You Love
• Prepare for Early Retirement
• Prepare for Retirement in Your 20s
• Plan for Long Term Care

Read more ...