What Should I Do With My Old 401k?

What Should I Do With My Old 401k?


Whether you are part of a recent layoff or are giving your two weeks’ notice, life can be stressful during a job transition. Moving on can be bittersweet as you gather your personal items and turn over keys, ID badges, or a laptop while saying goodbye to co-workers and friends as you head into the next chapter of your life.


If you have been recently laid off, life is probably a bit more stressful as you may not have the next job already lined up. You may be fearful and anxious as many major employers, particularly in the tech industry, are currently announcing planned layoffs and/or are in a hiring freeze. However, this may be an opportunity to take a long overdue vacation or a brief sabbatical—or even try your hand at something new.


Whether you chose to make this change or it was forced upon you, this is a busy and often confusing time as you transition between jobs. It may be tempting to delay (and even easier to completely overlook) one of the most important decisions about your financial life: what should you do with your old 401(k)?


When it comes to changing jobs and what to do with your old 401(k) account, you have many options available to you.


One option is to maintain the status quo and leave the account with the old employer (if plan rules allow you to do so). However, you should avoid leaving a trail of “orphaned” 401(k) accounts in the wake of your professional career. Having orphaned accounts can limit your ability to stay present within those investments and make administrative updates.


You could also cash out the balance, which typically would not be recommended unless your financial circumstances make it an attractive option. Cashing out a 401(k) plan triggers a taxable event and potentially causes you to have to pay penalties for early withdrawal.


Alternatively, you could roll the old 401(k) balance into a traditional IRA, enjoy a greater range of investment options, and potentially save on fees. If you go this route, you will need to make important decisions about what kind of account to open, how hands-on you want to be, and which brokerage firm will handle your account.


You might also consider rolling the old 401(k) into your new 401(k) plan if that is allowed per the plan rules.


We will now explore each option in more detail and look at additional reasons you might consider one option over another given your specific situation and desired outcome.


Option 1: Do nothing

Given all that is going on now, you may not feel like you have a lot of time or energy to do anything with your old 401(k). At a minimum, you will want to look at your plan to compare the investment options available to you, along with the associated fees. You may choose to leave everything in your old plan if you have a good selection of low cost investment options that span all the major asset classes like US Large Cap Stocks, US Value Stocks, US Small Cap Stocks, Real Estate, International Large Cap Stocks, International Value Stocks, International Small Cap Stocks, Emerging Markets, High Quality Short-term Bonds, High Quality Intermediate-term Bonds, and Treasury Inflation Protected Securities.


Some plans may even have access to asset classes that are not available in your new 401(k) or a Rollover IRA. For example, Boeing has access to a Stable Value Fund, TIAA has access to a unique private real estate portfolio, and Amazon has access to a lower cost Vanguard Institutional Index fund.


If you are between 55 and 59 and are planning to take a sabbatical or retire, you may want to review the details of your former 401(k) plan, as you might be able to access the funds penalty free.


Most employer-sponsored retirement plans, such as a 401(k), qualify under the Employee Retirement Income Security Act (ERISA) and are generally protected from creditors, bankruptcy proceedings, and civil lawsuits. Depending on the state in which you live, an IRA or other non-ERISA plan may, or may not, be protected from creditors. If you are at risk of creditors pursuing you, you will want to seek out legal counsel from an attorney who understands the nuances of your state, as the laws can be quite complex.


If your former employer was a publicly traded company and you own company stock in your old 401(k) plan, you have another item to consider. The net unrealized appreciation (NUA) of your company stock is the difference between your cost basis (or what you paid for the stock) and its current market value. Under the current NUA rules, employees can roll over the portion of their 401(k) invested in company stock to a brokerage account (not a retirement account) and pay tax at long-term capital gains tax rates rather than ordinary income rates when the shares are sold. It does not always make sense to use this strategy or to keep employer stock in your retirement plan. You will need to carefully weigh the pros and cons.


Inertia may seem like the easy choice. However, you might be surprised to find out that doing nothing may still require work on your part.


Remembering your old 401(k) account looks easy enough when you have just changed jobs. But if this is your default solution every time you change jobs, then you may be leaving a slew of orphaned 401(k) accounts in several companies over your career. A decade or two later, it may be difficult to remember where those accounts are—or that they even exist.


You will also need to monitor any changes to the investment lineup and cost structure within the old plan. It is important to note that employer-sponsored retirement plans like a 401(k) are not governed by your will or trust, and you will need to update your beneficiaries in the event of a marriage, divorce, or other major life events to ensure your 401(k) is inherited by the individual(s) you desire.


Finally, you will want to take a deeper dive beyond the basic fees for the investments within your 401(k) to consider how much it will cost you to keep your funds where they are. Most 401(k) plans have three basic types of fees: administrative, individual, and investment fees. The investment fee is how much it costs to invest in a fund. If your old plan doesn’t offer index funds, you’ll almost certainly pay higher investment fees. The administrative fee covers various costs of running the plan. These include costs like statement processing fees, web hosting fees, and customer service fees. In some cases, there may be “hidden” fees, such as wrap fees or revenue sharing arrangements. The individual fees, such as withdrawal fees or loan processing fees, apply to special plan features that a participant may opt to use.


Most investment accounts have fees associated with them. Your task is to make sure that you are getting a fair level of investment management service in exchange for the fees that you pay. Some 401(k) plans are more competitively priced than others, so you will need to review the details of your situation and a few alternatives before you can make a smart choice.


Possible Advantages:

  • Doesn’t require any effort or time at the moment
  • Retirement savings continue to grow tax-deferred
  • Might have unique or lower cost investment options
  • Potential for penalty-free withdrawals after age 55
  • Enhanced protection from creditors
  • Might have special tax treatment for company stock


Possible Disadvantages:

  • Must stay engaged with any changes within the plan
  • Lack of full transparency for all fees
  • Limited investment options
  • Remember to update beneficiaries
  • Multiple sites to log into and statements to organize
Option 2: Cash out

Let’s start with a small bit of good news. The most obvious (and possibly the only) benefit of taking a full distribution from your old 401(k) plan is getting your money immediately. If you are in dire financial straits with no other options, this may be something to consider. However, that distribution will come with a price tag.


If your account holds pre-tax money, the IRS is going to treat the distribution as taxable income to you. You will potentially owe federal and state income tax on your distribution. Keep in mind that depending on your taxable income in relationship to tax income brackets, a cash-out distribution may push you into a higher tax bracket, which means that a portion of your income for the year will be taxed at a higher rate.


If paying income taxes on your distribution isn’t punishment enough, in most cases you may also have to pay a 10% early withdrawal penalty if you are under age 59 ½. Unless you have specific plans for how you will use this money, remember that you will receive less than the total account balance after accounting for income taxes and penalties. There are a few exceptions that may allow you to avoid the 10% early withdrawal penalty.


If you change your mind about the cash out, you have 60 days to deposit the distribution into another qualified plan or a traditional IRA. This is called an “indirect rollover.” Within 60 days, you will need to deposit the cash you received plus any taxes that were withheld into a qualified retirement account. You are only allowed to do an indirect rollover once every rolling 12 months.


Possible Advantages:

  • Might need the cash if you’re facing extraordinary financial needs
  • Potential for penalty-free withdrawals after age 55


Possible Disadvantages:

  • Subject to federal tax and a 10% early withdrawal penalty
  • Your money is no longer growing tax-deferred
  • Might severely impact your ability to retire
Option 3: Direct rollover to an IRA

If you don’t want to cash out and potentially face a tax bill, but you also don’t like the thought of being tethered to your former company, one option is to do a direct rollover from your old 401(k) to a traditional IRA.


IRAs generally offer far more investment options than a typical 401(k) plan. With an IRA, you may get access to many more mutual funds than you would have in a 401(k) plan. You may also invest in individual stocks and bonds, exchange-traded funds (ETFs), and certificates of deposit (CDs). Depending on your investment preferences and goals, that degree of flexibility can potentially make a difference.


As you look at IRA fees, keep in mind that some custodians have asset-based fees (meaning you pay a percentage of the amount of money in your IRA), while other custodians have transaction-based fees, which you incur each time you buy or sell investments. Some investment options may have no additional trading or transaction fees. Be sure to read the fine print and estimate what a typical annual fee on an account with your size and activity would look like.


In general, assets in your IRA have some protection if you file for bankruptcy, but they are not necessarily protected from creditors. Whether or not your IRA offers creditor protection depends on your state of residence. Research your residency state for more details and seek out legal counsel from an attorney who understands the nuances of your state, as the laws can be quite complex.


Possible Advantages:

  • Retirement savings continue to grow tax-deferred
  • Wider range of investment options available
  • Consolidation of retirement plans
  • Greater control and visibility of the fees you are paying
  • Possibly lower expenses than your 401(k)


Possible Disadvantages:

  • Possibly higher expenses than your 401(k)
  • May lose special tax benefits on company stock
Option 4: Direct rollover to your new 401(k)

If your new employer offers a 401(k) plan that accepts direct rollovers from other 401(k) plans, you may opt to take this route. But be sure to ask the question first, as not all plans accept rollovers.


The main benefit of choosing this option is less administrative hassle for you. All your employer-sponsored retirement plan assets will be in a single account. That means less paperwork, fewer statements, fewer passwords, and fewer investment options to align. It will also make it easier to maintain proper beneficiaries.


The option to roll your old 401(k) into your new 401(k) gives you the benefit of simplicity. Instead of updating investments or risk preferences in multiple accounts, you can do it in one account.


However, that only works if you are satisfied with your investment choices. Research whether your new 401(k) offers investment options that you find attractive. Many employers offer excellent choices inside their 401(k) plans while others do not. Perhaps you want the ease and low cost of investing in index funds but your new plan only offers mutual funds that are run by a portfolio manager. Or maybe you find the plan rules to be too restrictive for your liking.


Possible Advantages:

  • Retirement savings continue to grow tax-deferred
  • Consolidation of retirement plans
  • Might have unique or lower cost investment options
  • Potential for penalty-free withdrawals after age 55
  • Enhanced protection from creditors
  • Might be able to borrow against the new plan


Possible Disadvantages:

  • Must stay engaged with any changes within the plan
  • Lack of full transparency for all fees
  • Limited investment options


There is no one-size-fits-all path for what to do with your old 401(k). Choose what best fits your financial goals and resources. Your decision should also account for how hands-on (or hands-off) you wish to be in your investing, how much time you are willing to dedicate to reviewing your accounts and making course-correcting decisions, along with researching the investment vehicles that are available in each plan or account.


At the end of the day, any of these options may be right for you. What’s most important is that you make a strategic choice about what to do—and that you complete the rollover correctly to avoid unnecessary taxes.


If you have additional questions or if you would like help with keeping your retirement savings on track through your job and life changes, reach out and schedule some time with one of our advisors today!





Disclosure: All opinions expressed in this article are for general informational purposes and constitute the judgment of the author(s) as of the date of the report. These opinions are subject to change without notice and are not intended to provide specific advice or recommendations for any individual or on any specific security. The material has been gathered from sources believed to be reliable, however Merriman cannot guarantee the accuracy or completeness of such information, and certain information presented here may have been condensed or summarized from its original source.  Merriman does not provide tax, legal or accounting advice, and nothing contained in these materials should be taken as such. To determine which investments may be appropriate for you, consult your financial advisor prior to investing. As always please remember investing involves risk and possible loss of principal capital and past performance does not guarantee future returns; please seek advice from a licensed professional.

Should You Renovate or Move Right Now?

Should You Renovate or Move Right Now?

COVID-19 is causing different challenges for everyone. Things that were once easy have become more complicated and time consuming, especially when it pertains to financial decisions. Deciding whether to renovate your home or move into a new one in the midst of this global pandemic for one, comes with added stressors. Try some of these helpful tips to take the financial anxiety out of moving or remodeling and make this milestone a little easier in the midst of these uncertain times.

Consider the area:

Location is more than just your home – consider the school district, surrounding community, neighborhood and amount of land. Most will agree location is everything, and If you love the location of your current home, that is a great enough reason to stay put. However, if you’re still adamant about moving for other reasons, these location factors could attract potential buyers as well… let’s review your options.

Renovating your home may require more than just a fresh coat of paint, and instead could mean much needed addition. If you plan to expand your family or if you just want more space, first determine whether your current property can accommodate the addition or renovation. The growth of your family may require more bedrooms or a larger common room, but if your home and property size are too small to make an addition, this may be a sign to move.

Another consideration is the community you live in. Whether it’s a cozy village, offers great community activities, or you just love your neighborhood, these are the things you may miss if you move to another area. The same sentiment goes for the school district. If it’s highly rated and you have kids in school, it might be worth staying in the area. If you decide moving is the best option for you and your growing family, look for a home in the area that checks off all of the boxes, while offering the space you need!

Keep all of these considerations in mind when looking for a buyer as well. If you are an empty nester contemplating moving, these details may be important for a young family looking to move into a top school district. Have your home appraised and research recent comparable homes sold in your area to decide if yours could be an easy sell in the current market.

Review your finances:

Buying a home is always an investment. If that’s the side you’re leaning toward, you have to consider if you’re financially ready to go through the process. Right now, mortgage rates are at an all-time low due to COVID-19, and that may be enough to sway you in the direction of buying a new home. However, you may need to invest in minor upgrades to your current home before listing it to sell, as well as pay an agent and movers. Set extra money aside for these improvements when budgeting for the big move. You may also want to consider keeping your current home to rent on Airbnb for added income, while buying a second home to live in.

If you’re leaning toward renovating your current home and staying long-term, you have a multitude of choices to consider depending on your financial situation. Home equity loans are an option for homeowners with a decent amount of equity built up in their purchase. Usually, if you’ve owned your home for five years or more, you can take out this loan to use for whatever you’d like. Most homeowners choose to use a home equity loan or line of credit for home upgrades but you can also consider liquidating investments, using a personal loan, margin loan, or pledged asset line of credit. Be sure to pay attention to interest rates, as they may be higher for these types of loans considering the economic times.

Be aware of timing:

Due to COVID-19, selling your home or starting renovations will take longer than usual. We are living in unprecedented times, where those who can help you sell or update your home are finding unique and optimal ways to get their jobs done, while still experiencing some barriers that may slow their services down. Be patient,and use this time to connect with your renovators or realtors to find or build your perfect home.

Right now, it’s smartest to work with a realtor if you’ve decided to sell your home. Viewings have to be done virtually for the time being and you will strongly benefit from using a realtor to advertise your home online. Be aware that selling your home may take longer than in years past because many people feel less secure in their finances. Additionally, it’s hard for a buyer to make this decision without seeing their potential new home in person.

On the other hand, finding a contractor won’t be easy either. All over the country, home renovation projects are being delayed or cancelled due to stay at home orders. However, some states have recently allowed construction workers back on the job, deeming them essential. If your desired contractor is able to work and follows all CDC regulations, you can likely get your home renovation started now!

All in all, there are positive and negatives to both renovating and selling during this time. Hopefully we have given you some things to consider when trying to decide between these two options. Keep in mind that your situation may be different from your friend or neighbor, and you have to do what is best for your family right now. Involving your financial advisor in this discussion can help provide both the financial insight and perspective of your long-term goals, along with an objective viewpoint on a decision that is often quite emotional. If you’re considering this major change and want to discuss it related to your specific situation, please don’t hesitate to reach out.

Webinar | The Fragility of Retirement in the Coronavirus Era

Webinar | The Fragility of Retirement in the Coronavirus Era


Our team at Merriman has been diligently following COVID-19 pandemic updates across the world and in our own communities.

We have also been hearing lots of questions from clients, prospects, friends, and family.

Can I still retire or stay retired? Am I still able to relocate as I had planned? Should I sell all of my stocks now? Should I go to cash? Should I use all the cash I have to buy in? Should I file for Social Security earlier than planned? How will I pay for a hospital stay if I need one?

If you are worried about some of these things too, I have good news.

We have partnered with America’s Retirement Forum (a nationwide non-profit dedicated to providing financial education to adults) to organize a webinar that can help.

Why trust me?

I am the Director of Advisory Services at Merriman Wealth Management and an instructor through America’s Retirement Forum. I have been helping people transition into and navigate retirement for over 20 years, and Merriman has been in the business of educating investors since our founding by Paul Merriman in 1983.

In this webinar I’ll discuss:

  • The short and long-term impacts of the COVID-19 pandemic on the economy
  • Why this recession may be different from what you have lived through before
  • 5 specific steps designed to protect and maximize your retirement income in the middle of a pandemic (yes, you can implement them yourself)
  • 6 strategies and issues to discuss with your advisor

In this time of worry, false information, and uncertainty, make the choice to spend some of your time learning about what you can do to retire well. And the best part is that you don’t have to put your health at risk or leave the house. All you need is 30 minutes and an internet connection to watch this free webinar.

Click here to watch the webinar now!

Don’t delay: Some of the strategies discussed in the webinar are time-sensitive. I would hate for you to miss an opportunity or to take action without having all the facts. We want to help you avoid mistakes and take the proper steps toward securing your financial future.

Stay home, be well, and use this unprecedented time to get informed. Feel free to reach out with any questions.

Employee Spotlight | Tyler Bartlett

Employee Spotlight | Tyler Bartlett

Kim: How did you come to Merriman?

Tyler: I had heard of Merriman from Paul’s weekly radio show. I was working at US Trust and they were going through some changes, and I had started thinking about opening up my own advisory firm.  I would often talk with a fellow co-worker, Mark Metcalf, about what my firm would look like.  Both of us had been doing research on advisory firms, and learned more about Merriman. Mark interviewed with Merriman and got a job as an advisor. He said it was a great place to work and that I should apply.  I interviewed and thought about whether I wanted to be a competitor, or join a firm that was already doing a great job of taking care of clients.  Here I am 13 years later.


Kim: What is your role at Merriman and what do you love about working here?

Tyler:  I started as an advisor in 2006 and in late 2018 I became the Director of Advisory Services.  Helping advisors and the company improve the services we offer to clients, by overseeing all things that impact advisors and the advice we give.  There are many things to love about working here, from an employee perspective it’s a family-oriented atmosphere.  We all support each other through the ups and downs of life.  I feel that because we are all so well taken care of, we take care of our clients with the same intent.  For clients, I love how thorough we are with everything we do, and we’re always making sure that we emphasize what is in their best interest, a true client first mentality.  Everything we do is to better the client experience, while continually improving how we can provide better advice on all aspects of our client’s life as well as being transparent with the research that goes along with the improvements.


Kim:  How do you spend your time outside of work?

Tyler:  With my three kids who are all very active.  My daughter, Ivy, is a sophomore and plays basketball year-round.  She is an honor student, involved with the Associated Student Body, and regularly volunteers within the community.  My son, Owen, will be a freshman in high school and plays basketball year-round, and is looking forward to playing football in high school.   My youngest son, Caleb, is in third grade. His current passion is playing ice hockey.  Our favorite family vacation spot is Seabrook, where we can take our two dogs.  There are lots of kid activities as well as the beach that keep us busy and able to focus on family fun.


Kim:  Merriman has employees take the StengthsFinder quiz so we can understand how to best work with each other. What are your top five strengths?


  • Competition
  • Achiever
  • Focus
  • Discipline
  • Consistency

Tyler Bartlett featured in “How to Go from Middle Class to Millionaire”

Our very own Tyler Bartlett was recently featured in an article from Guide Vine: How to Go from Middle Class to Millionaire, about the patience and discipline required to become a millionaire. Here’s a snippet:

Here is the good news: millionaire status is very much within the reach of America’s middle-classes who earn higher-than-average incomes. A typical middle-class family has a combined household income of $97,000, with upper middle class households bringing in incomes above $100,000. Bartlett offers an example of a couple living in Seattle. Like typical upper middle class Americans, both are college-educated professionals with good, steady incomes. The couple, a real estate and a sales executive, together earns $150,000 per year. For 13 years, this couple saved as much as $1,000 per month. They maxed out their 401(k)s. Today, they have more than $1 million in investible assets. “They took hard steps,” said Bartlett. “They worked full-time jobs and had the discipline to do the right thing financially.”

Do you have what it takes? Read the full article at Guide Vine here.

Merriman INSIGHT – This too shall pass

The stock market has delivered a very volatile week to investors, perhaps striking a nerve not felt since 2008. As I write this, the S&P 500 has dropped more than 5% in a week and almost as much today, causing many investors to recall the sickening downturn of what some called “The Great Recession.”

Since 1980, the average intra-year decline for the S&P 500 has been -14.2%, even though annual returns were positive for 27 of those 35 years, or 77% of the time.


The S&P 500 has more than doubled in value from March of 2009 , and we have gone more than 1,400 calendar days without as much as a 10% correction. This is the third longest stretch in over 50 years without such a decline. Since 1928 the S&P 500 has experienced a 10% correction almost once per year with an average recovery of 8 months.

082415TableCorrections of 20% or more for the S&P 500 have historically occurred at the end of market cycles. In the short run the S&P 500 has pulled back 5% an average of four times per year, or about once per quarter. In fact, the S&P 500 has experienced a 5% or greater pullback every year since 1995. Drawdowns of 2%-3% occur far more often, at least monthly on average. As such, pullbacks alone should not be a reason for panic.

In times of increased volatility such as we have experienced, it’s important to revisit these important lessons that are the underpinning of a successful investment strategy. (more…)