Leaving my job. Should my 401(k)/HSA come with me?

Photo by micheile henderson on Unsplash

Before I answer, let’s take a quick Translation Timeout to make sure everyone understands the question.

Leaving a job means you have to make a decision about what to do with your retirement account. You usually have three options:

1. Leave it where it is (but there might be a minimum balance requirement).
2. Move the money to your new employer’s 401(k) plan.
3. Move it to an IRA.

The process of moving the money from your original 401(k) to a new one or to an IRA is called a “rollover”. This is not the same as an early withdrawal as long as you complete the rollover within 60 days of initiating it. Don’t get it confused. You can do this process any time after you leave your job. But once you start the process of moving the funds, you must complete it within 60 days or you could get taxed and hit with a penalty for an early distribution.

My personal preference: yes. Just roll it over either into your new company’s 401(k) — if allowed — or into an IRA. Having it all in one place makes it easier to keep track and you won’t risk forgetting any along the way. Plus, you might find yourself with access to higher quality, lower cost investments in an IRA compared to your old (or even a new) company’s 401(k) plan.

You don’t have to open up a new IRA for each rollover. Your 401(k) can all be rolled into the same place each time you leave a job, so long as it’s the same type of account. Meaning, if you had a traditional 401(k) – the money went in pre-tax – then it goes into a Traditional IRA. If you had a Roth 401(k) – the money went in post-tax – then you’d need to roll it into a Roth IRA.

It’s actually fairly simple to initiate a rollover and most companies are eager to help you move that money on over. Vanguard, Fidelity, Betterment, Charles Schwab are all examples of places where you can open an IRA to facilitate a 401(k) rollover. (As in just click those links and you’ll be on the appropriate landing page to explain the process. No kickbacks or referral bonuses or endorsements here. That’s just info, plain and simple.)

Don’t want to rollover and plan to leave it with your old employer? That’s fine, but make sure that you check-in on that account at least a few times a year. It’s possible that your old company could change providers at some point and you certainly don’t want to miss that information about who houses your 401(k)! (That actually happened to me, which is what motivated me to rollover my first 401(k))

Translation Timeout: HSA = Health Savings Account.
A Health Savings Account (HSA) is a way to save and invest for future medical costs. It is triple tax advantages in many states because:

1. You contribute to the HSA pre-tax (so it lowers your taxable income)
2. You can invest the money and it grows tax free.
3. You can withdraw it tax free for qualifying medical expenses.

It’s different from a Flexible Spending Account (FSA), because those are a use it or lose it account and the funds can’t be invested. HSAs can be kept for years-and-years and funds won’t expire. You do need a high deductible health plan to be eligible to contribute to an HSA.

(Because that’s all this one needs.) 

It definitely could make sense to rollover! check those HSA fees! Depending on the company that currently handles your HSA, it could make sense to do a rollover, just like with your 401(k).

Evaluate the fees being charged and the investment options available to you – just like with your 401(k).

Tragically, I didn’t think to roll my HSA over and just sat on it for years thinking I had this nice, little back-up medical emergency fund. Silly me not looking at the fees because I was losing $1.50 a month. It sounds small, but I got this HSA in 2013 and didn’t check-in on it…I’d lost nearly $100 to fees by the time I wised up.

Fidelity, Lively and HSA Bank are a few options for rolling over an HSA.

Helpful Hint: I like to take customer service for a test run before I move my money to a new financial institution. I call and ask customer service a few questions (and calling one more than once helps really vet it) and also like to see how easy it is to get in touch with someone. 

• Keeping your retirement accounts consolidated into one place just makes life easier.
• You don’t want to risk forgetting about an old retirement account or trying to track it down a decade down the road.
• Companies can switch 401(k) providers, so keep close tabs on your old 401(k) if you elect not to do a rollover.
• You can rollover an HSA, which is ideal if your current HSA provider charges a lot of fees or has lackluster investment options.