Combining 401(k) accounts: What you need to know

In a nutshell

Managing and tracking multiple 401(k) accounts can be challenging, but it can be easier if you combine them into a single plan.

• You may be able to roll over old 401(k)s into a new employer plan.
• If your new employer doesn’t permit rollovers, you can move old 401(k) assets into an IRA.
• There can be tax consequences if the 401(k) funds aren’t handled correctly.

How to find old 401(k)s

It’s sometimes difficult to find old 401(k) plans due to either the passage of time, a corporate takeover or bankruptcy of the sponsoring previous employer.

The best place to start is to check directly with your previous employers. The human resources department should be able to direct you to the proper parties in charge of previous 401(k) plans. The employer should be able to locate your plan based on your Social Security number, though it may also help to provide your approximate dates of employment.

Failing that, you can try the U.S. Department of Labor website. It may not help you to locate your previous employer's 401(k) plan, but it should be able to help you find your previous employer. Another resource is the National Registry of Unclaimed Retirement Benefits. It’s an online resource where you can search for unclaimed plan balances.

If these efforts don’t work, or if locating a previous employer’s 401(k) plans seems overwhelming, you can engage the services of Beagle, which specializes in finding old 401(k) plans for a fee. It can also be used to find hidden fees in those plans so that you can better assess the pros and cons of consolidating your old 401(k)s. And if you decide to consolidate, Beagle can also help you with a rollover process. Capitalize, a similar company, also helps you track down old 401(k)s and has a free rollover service.

How to combine 401(k) accounts

When it comes to combining your 401(k)s, you have several options. Which you choose will depend heavily on whether your current employer accepts 401(k) proceeds from previous employer plans.

To begin with, note that combining 401(k) accounts will not affect the maximum 401(k) contribution for the current year, since the old plans represent contributions from previous years. For 2024, the maximum annual contribution to a 401(k) plan is $23,000, plus an additional $7,500 if you are 50 or older.

Let’s look at the three most likely scenarios.

Your employer will accept rollovers from previous employer 401(k) plans

If your new employer accepts rollovers from previous employer 401(k) plans, you’ll be able to consolidate multiple plans into one and take advantage of all the benefits that offers. Be sure to contact your new employer to be certain they will accept rollovers from previous employer plans. Most will, but certainly not all.

To combine old 401(k) funds with your new plan, you’ll need to contact the plan administrators for each of your previous employer plans. The plan administrators should have a contact person who can walk you through the process over the phone or direct you to the website where you can complete the necessary forms. Sometimes the plan administrator will mail you a copy of these documents.

Next, contact the plan administrator of your new 401(k) plan to obtain the necessary information to receive funds into that plan. If possible, you should attempt a direct transfer of funds from your old plan(s) to the new one. The previous plans should be able to send the funds electronically, which will be the quickest way to complete the transfer.

The reason to favor a direct transfer is to avoid any delays that may result in an unintended tax liability. Under IRS regulations, you have no more than 60 days to complete a rollover from one retirement plan to another. If you fail to complete the transfer within that time, the entire balance can be declared a taxable distribution subject to your ordinary federal and state income tax rates, as well as a 10% penalty if you are under 59 ½.

Your employer will not accept rollovers from previous employer 401(k) plans

If you want to combine your 401(k) accounts, but your new employer won’t permit it, the next option is to roll the plan(s) over into an IRA. Similar to a rollover from one 401(k) plan to another, there is no tax liability if you roll previous 401(k) plans over into an IRA. Once again, the IRS 60-day rule applies.

There are advantages to an IRA rollover. For example, it allows you to choose the account where the plan will be held. This also allows you to choose a broker that offers many more investment options than 401(k) plans typically do. On the downside, you’ll need to manage an IRA account yourself, though many large brokers also offer multiple managed plan options.

If you do choose to roll over previous 401(k) plans into an IRA account, the strategy is a bit different from rolling the plans into a new 401(k) plan. Once you’ve chosen the IRA trustee, you can provide that trustee with information on your prior employer 401(k) plans. The trustee will usually be able to accomplish a rollover directly from the previous plan.

Consider the impact on a backdoor Roth IRA when rolling a 401(k) into an IRA

There’s another potential complication when doing a rollover of 401(k) plans to an IRA. The rollover may interfere with what’s known as a backdoor Roth IRA.

Unlike traditional IRAs, where anyone can make a contribution even if their income exceeds the limits for tax deductibility, with a Roth IRA you will be unable to make any contribution at all if your income exceeds a certain threshold.

Some high-income taxpayers get around the Roth IRA income contribution limit using the backdoor Roth IRA strategy. This strategy involves making a nondeductible contribution to a traditional IRA and immediately converting it to a Roth IRA. Since the contributions to the traditional IRA were not made with tax-deductible funds, no tax liability is created by the Roth IRA conversion.

Roth IRA conversions aren’t as easy when an IRA account includes funds from previous 401(k) plans. That’s because funds held in 401(k) plans are typically made with tax-deductible contributions. An IRA containing 401(k) funds will likely have a tax liability in doing a Roth IRA conversion because of those tax-deductible contributions.

If you’re considering a backdoor Roth IRA conversion, be sure to discuss the implications of a 401(k) rollover into a traditional IRA with a CPA or a financial adviser. The tax liability could cost thousands of dollars.

Leave previous employer 401(k) plans where they are

If your new employer 401(k) plan does not accept rollovers from previous employer plans, you have the option to leave those plans where they are, provided your balance in each is more than $7,000. This strategy makes abundant sense if you are satisfied with the investment options and overall performance of one or more previous plans.

However, if you do leave all plans where they are, you may need to be more actively involved in their management. Many older employer plans get forgotten by their owners, especially if employment was severed many years in the past.

When investing for retirement, it’s mission-critical to have all plans working within a cohesive investment strategy. If you don’t believe this is a task you can handle on your own, it may be time to engage the services of a qualified financial adviser. You can find a qualified financial adviser using a service known as WiserAdvisor. The site can provide you with a list of prevetted advisers in your area who specialize in 401(k) strategies.

How to monitor and manage your combined 401(k) account

Once you have your various 401(k) plans combined within a single plan with your new employer, it will be time to manage the plan going forward.

Most 401(k) plans offer target-date funds (TDFs), which you can choose based on your current age. A TDF, sometimes referred to as a fund of funds, more commonly referred to as life cycle or age-based funds, holds several stock and bond funds. The stock/bond allocation percentages are based on your current age.

For example, if you’re 30 years old the fund will mostly have your money invested in stock funds. As you move toward retirement age, money will gradually be shifted into a higher bond allocation. By the time you’re 60, the fund will have more of your portfolio in bonds.

If your plan does not offer TDFs or any other type of managed plan option, you can hire a financial adviser to help. Financial advisers can’t directly manage your plan, since it is administered by your employer, but he or she can give you advice to help you manage the plan yourself.

The AP Buyline roundup

The best time to roll over a previous employer 401(k) plan into either a new employer plan or an IRA is immediately after termination. But even if several years have passed since you left your previous employer, it’s still possible to combine an old 401(k) plan with a new one or roll the assets over into an IRA. If your new employer will allow you to do a rollover into the new plan, that’s usually the best option. If not, you can roll over the old plan assets into an IRA.

Frequently asked questions (FAQs)

Are there any tax implications for combining 401(k) accounts?

Generally, no — or at least as long as you combine the accounts properly. Anytime you withdraw funds from a retirement plan you have 60 days to complete the rollover into a new plan to avoid a tax liability. If you miss that deadline, the withdrawal will be considered a distribution, subject to ordinary income tax and a 10% penalty if you are under 59 ½.

The best way to avoid that liability is by setting up a trustee-to-trustee transfer of funds from an old 401(k) to a new 401(k) or IRA. Since the funds will immediately go from one plan to another, there’s no possibility of an accidental distribution.

Can I combine 401(k) accounts from different employers?

The answer to this question depends on your new employer. If they accept 401(k) assets from previous employers into the new plan, you can easily combine multiple plans into one. If they don’t, your only other option is to do a rollover of previous plan assets into an IRA. Either strategy will create the desired combination without generating a tax liability.

What happens if I forget about an old 401(k) account?

There are resources you can check, such as the U.S. Department of Labor website or the National Registry of Unclaimed Retirement Benefits, to help you find an old plan. If you can’t locate a plan through those resources, take advantage of a dedicated 401(k) plan search firm like Beagle or Capitalize.

Is it worth having multiple 401(k) accounts?

It’s really a matter of personal preference. If you can successfully manage multiple accounts there can be advantages. For one thing, you may be able to allocate specific investments to individual plans. That can make investing within each plan easier.

However, there are also advantages to combining plans. By doing so, you can manage your entire investment portfolio in one account, and you may avoid multiple fees from having several accounts.