Your Old 401(k)s Could Be Costing You Thousands. Here's When and How to Consolidate

Americans hold an average of 12 different jobs by age 50. Even if you don’t have access to a retirement account at every one, you’ve still probably accumulated your share of 401(k)s over the course of your working life.

Among workers ages 50 to 59, 22% have two 401(k) accounts, while 4% have three accounts and another 4% have four, according to Cerulli Associates, a financial services research and consulting firm.

So what should you do with them? When you leave a job, does it make sense to rollover your 401(k) into a new 401(k) or an existing IRA, or leaving it where it is? The considerations to weigh are the same at every age, although some experts say the case for financial consolidation grows as you approach retirement.

If you have a balance of less than $5,000 in your account, you may not have a choice. Under that amount, whether you’re allowed to keep your account or are required to move your money elsewhere is at the plan’s discretion, says Matt Sadowsky, director, retirement and annuities, TD Ameritrade.

If you do have the option to leave your 401(k) where it is, here are the three main factors to consider, Sadowsky says:

Know Your Fees

Only a third of Americans know how much they’re paying in fees in their 401(k) account, according to a recent TD Ameritrade survey. In fairness, it’s not always that easy to figure out. It’s a good thing to pay attention to, though, since fees can eat into your returns, leaving you less money in retirement. Big companies are generally able to get lower fees on their 401(k) offerings than smaller ones, through economies of scale. The largest plans, those with more than $100 million in assets, typically have fees of 0.5% or below, while those for smaller employers can range up to 2%, according to BrightScope, a research firm. This might not seem like a big difference, but it can add up to thousands over time. No matter what size firm you’re moving to, compare the fees that you’ll be paying in both 401(k)s and in an IRA, if you choose to roll your old 401(k) into an individual retirement account instead. This tool from TD Ameritrade helps you do a fee analysis.

Investment Choices Are Mostly the Same

You’ll generally find similar funds in any 401(k) plan. For example, there will be a Standard & Poor’s 500 mutual fund that mimics the movement of the broad stock market. You can find that type of fund in an IRA as well. But there are certain types of funds available in workplace retirement accounts that are not as widely available in the IRAs that you open yourself. For example, many 401(k)s offer stable value funds, which are conservative funds that typically offer slightly higher yields than money market funds. If you have one in your old 401(k), and you won’t have access to one in your new 401(k) or existing IRA, that could be an argument in favor of leaving the 401(k) where it is.

The Case for Consolidation

It can grow harder to manage money at your old 401(k) over time, especially if your contacts at your old company are no longer current, or your investment portal changes. To be sure, you might not need to do much if your money is in a target-date fund that automatically adjusts your asset mix over time.

But still, there’s paperwork to keep track of. For one, you need to keep track of your beneficiaries at all your different accounts. Beneficiaries designations are really important, because they override anything you have written in your will about who will inherit your assets. For example, you may say in your will that you want to leave everything to wife #2, but if wife #1 is still named the beneficiary on your 401(k), then wife #1 gets that money if you die. If you need to change your beneficiary after, say, a divorce, then you’ll have to contact each company where you have an account, and that’s one reason to consider consolidating accounts into one place.

“A lot of clutter is hard to manage,” says Adam Holt, a certified financial planner and CEO of Asset-Map, a financial tech company.

Not only can you manage your financial life easier if all your money is in one place, but also it can make it easier for someone to step in and help you if it becomes difficult for you to manage your own financial affairs in older age.