It is given that, over the course of a fifty-plus year career, one may end up having a dozen or more employers. The law requires all employers to continue to administer your 401(k) even decades after you’ve left the company – at little to no cost to you. However, it is a best practice to rollover your ex-employer’s 401(k) into a Rollover IRA soon after you leave. Some reasons why this makes sense:
You could choose to roll all your 401(k)s into the same IRA for simplicity. That way, these all important assets are in one place, fully in your control. Once your IRA account value is over $100,000, Interactive Brokers may be your best/cheapest option. Further, you can invest these assets in super low-cost diversified ETFs. Let’s consider the real-life examples of a wonderful couple I have known for over a quarter century. Prakash and Shoba were among the very first employees at my first business, TransTech. They both joined TransTech in 1991 and left in 1995. I sold the business in 2000. Amazingly, TransTech is still around and thriving, but has had three different owners over the last 25 years. Not only did Prakash just leave his 401(k) untouched at TransTech since his departure over 21 years ago, both of them have left every 401(k) they participated in with every employer! Between them, they have nine 401(k) accounts scattered amongst a diverse range of employers. The good news is that both did participate in 401(k)s at every employer. And even though they did not maximize what they could have contributed in the early years, the value of these assets today is seven figures – a meaningful portion of their networth. I counseled them to take a little time and move all these orphaned 401(k)s into rollover IRAs. They have promised to do so, which is great. However, they are not alone. A few days back, The Wall Street Journal ran a great story, entitled, “What Ever Happened to that Old 401(k) You Had?” http://www.wsj.com/articles/whatever-happened-to-that-old-401-k-1480302720 The WSJ did a great job of providing resources to getting control over these all-important assets that you left behind at some employer that no longer exists decades ago. Participating in 401(k)s and maxing the employer match is important. Of nearly equal importance is the rollover of these assets when you say goodbye to your employer. Finally, KISS (Keep it simple, stupid), is a great way to go – as our mythical hero Sonia Patel did: https://www.youtube.com/watch?v=sk2gJ3TCNSQ
9 Comments
Suresh
12/22/2016 02:29:38 pm
Sir, I greatly admire your work!
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Mohnish Pabrai
12/23/2016 06:33:16 am
Interactive Brokers is a major brokerage firm. They are tightly regulated and cannot comingle client assets with theirs etc. Fidelity has no banking operations. Neither does Schwab. I don't see any of their clients have issues due to the broker going insolvent etc.
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Suresh
12/23/2016 09:14:51 am
Thanks a lot for the clarification..!
Bakul
2/4/2017 10:54:21 am
Mohnish,
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Mohnish Pabrai
5/17/2017 05:48:04 pm
Thanks for the nice note, Bakul.
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Praveen
4/28/2017 08:32:12 am
Why Interactive Broker and not Vanguard? Please elaborate.
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Mohnish Pabrai
5/17/2017 05:47:37 pm
Interactive Brokers has one of the lowest trading fees. The key concept is to roll over your 401k into an IRA so that you have full control over it. It does not matter whether you use Interactive Brokers or Vanguard for this.
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2/21/2023 12:57:37 pm
There is so much in this article that I would never have thought of on my own. Your content gives readers things to think about in an interesting way. Thank you for your clear information.
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Fairplay has gained popularity as an online gaming platform, catering to users interested in sports games, and more. But is it a reliable choice for Indian players? In this review, we’ll dive into its features, usability, payment options, and overall trustworthiness.
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Mohnish PabraiMohnish Pabrai is the founder and Managing Partner of the Archives
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