Time to Combine Your 401k Plans

Posted by Nick Niesen on October 29th, 2010

2006 is the twenty fifth year of the 401k investment plan. Have you had more than one job in the last 25 years? If so, then you probably have more than one 401k plan floating around.

401k plans are now over 25 years old. They seemed a unique idea at first, but now just about every employer offers one. And I?m sure I don?t need to tell you that they are a great way to save and earn money over the years.

The issue here is whenever you setup a 401k, you usually diversify your plan with your employer. Obviously, you must invest using the current options your employer offers, which is good. Investing a little in the high risk, some in the moderate risk, and some in the lower risk funds its typically the plan. You may have been a little more open on taking risk 20 years ago than you are today. Maybe now you are a little more conservative in your investment goals. So you think you are diversified, right?

Not really? especially if you have ten plans with ten different employers. Remember you tried to diversify each one when you set them up. Well, ten different plans diversified the same way means that your portfolio is not really diversified at all. One employer?s moderate risk program may be another employer?s low risk plan. Your 401k 15 years ago where you invested in ?tech? stocks was probably a high risk option. Now some of those high tech stocks are the most conservative investments.

The only way to manage your multiple 401k plans effectively is to combine them into one plan, under one investment portfolio and review it at least annually. One of the great things about 401k plans is they are transferable. The important thing is not ever to close a 401k and reinvest it, this is a taxable event. You can easily transfer your old 401k plans into an existing or a new 401k so you can manage your risk.

This is one time when ?everything under one umbrella? is the way to go.