Thinking of rolling over your old 401(k) into an IRA? Here’s how.

When it comes to old 401(k) plans, it’s easy to let them sit in the back of your financial closet, out of sight and out of mind. But if you’ve been putting off making a decision about what to do with your old 401(k), it’s time to take action. Here are the key steps you should follow to finally address your old 401(k) and make a plan for its future.

Step 1: Assess your savings

If your former employer’s 401(k) balance is over $7,000, you have the option to leave the money where it is, roll it into an IRA, or transfer it to your new employer’s 401(k) plan. However, if your balance falls below $7,000, your choices may be limited by your former employer’s policies.

Step 2: Decide on a course of action

If your balance is over $7,000, you’ll need to decide whether to roll the money into an IRA or keep it in a 401(k). While rolling over to an IRA is often recommended for its flexibility and investment options, some may prefer the creditor protections and specific investment choices offered by a 401(k). If you choose to keep your money in a 401(k, research your options carefully, including whether to stay with your former employer’s plan or move it to your new employer’s plan.

Step 3: Select the right investment options

If you opt for a rollover to an IRA, choose a brokerage firm or mutual fund company that offers a range of high-quality investment options with minimal fees. Consider target-date funds for a simple and efficient investment strategy. If you have Roth 401(k) contributions, rolling them over to an IRA or a new 401(k) will maintain their Roth status, allowing for tax-free withdrawals.

Step 4: Complete the necessary paperwork

If you decide to roll over your assets, fill out the required forms to open an IRA and request a direct rollover from your 401(k) provider. Make sure the check is made payable to the new provider to avoid tax withholding. If rolling over to a current 401(k), ensure proper asset allocation. Consider a target-date fund for a comprehensive retirement investment strategy.

Don’t let your old 401(k) gather dust in the back of your financial closet. Take the necessary steps to address it and make a plan for its future. For more personal finance tips and resources, visit Morningstar’s personal finance page.