Still have a 401(k) or pension at a past employer?

Why this matters now

Many people in their 50s and 60s have a pension or an old 401(k) sitting at a former employer. Often nobody ever looked at it closely. The decisions attached to it are usually hard or impossible to undo, so it is worth slowing down before you act.

Before you roll over a 401(k), consider

• What it costs now. Plan fees and investment fees can differ between your old employer plan and an IRA or other option. Ask for the fee disclosure for each.
• What you would give up. Some employer plans offer features an IRA does not, and the reverse is also true.
• How the money moves. A direct rollover (plan to plan, never in your hands) generally avoids the mandatory tax withholding that applies when a check is made out to you.
• Taxes. Rolling pre-tax money into another pre-tax account is generally not taxable. Cashing out generally is, and may add a penalty before age 59½.
• Your income plan. Where will paychecks come from in retirement, and which account feeds them?
• Who inherits it. Is the beneficiary form current? A form from years ago can send the money to the wrong person.

Pension: monthly payments or lump sum?

If you have a pension, you may be offered a choice. Both can be right for different families.

• Monthly payments give a steady paycheck, often for life. Ask what the survivor benefit is and what happens to your spouse if you die first.
• Lump sum gives you a large amount to manage yourself. It can be rolled over, but investment risk, taxes, and making it last become your job.
• The election is often final. Once you choose, you usually cannot change your mind. Get the numbers in writing and ask the plan administrator for every option before you decide.

Who do your beneficiaries call?

If the account holder dies, the family usually works with the plan provider's service line to claim the money. That means forms, waiting, and strangers, at the worst possible time. A local advisor who already knows your plan can walk your family through it. That is one reason people work with someone in their own community.