How to Painlessly Run the Gauntlet of a 401k Rollover

If we’ve taught you nothing else here at Bitches Get Riches, it’s that you should:

1. sign up for your employer’s retirement plan and
2. job hop your way to a nice fat salary.

Yet these two bits of career advice might seem to conflict with one another. After all, if you’re job-hopping your way up the salary food-chain, you might be leaving a trail of old retirement plans behind you to languish. What do you do with your old 401k when you move on to a new employer, or even embrace self-employment?

Enter the 401k rollover: the most hateful, obnoxious, and needlessly complicated bureaucratic process known to man.

Today we’re not only going to demystify the process of how to roll over an employer-sponsored retirement plan like a 401k—we’re going to make it beautifully, sinfully painless. It’s going to be so much fun you guys!!!!!

For the purposes of this article, I’m going to use the terms “401k” and “retirement plan” pretty interchangeably. What I mean when I use those terms is “employer-sponsored, tax-advantaged retirement investment account such as a 401(k), a 403(b), or a 457(b).” But that’s a fucking mouthful.

The simple 401k rollover: More impossible than you think!

A 401k rollover is easy as eating pancakes! First, sacrifice some adorable barnyard animal to the gods of bureaucratic nonsense. Then make several false attempts before eventually giving up in frustration. Finally, ignore all your old retirement plans well into your dotage because ignorance is bliss.

That’s it! End of article! Glad we had this talk!

But seriously… why is it so hard to roll over an old retirement plan?

The Retirement Equity Act of 1984

In 1984 the government signed into law the Retirement Equity Act. This lovely little piece of legislation is designed to make sure working people don’t screw over their spouses when it comes to hiding retirement investments. Money Under 30 explains it quite nicely, but the result of this Act is that you have to either swear to your singleness in writing, or your spouse has to sign off on you rolling over the 401k.

As a result, a big part of the 401k rollover process involves you (and your spouse if you’re married) signing forms and getting them notarized by an actual notary public, one of the rarest beasts in the animal kingdom.

Banks aren’t incentivized to let go of your money

Financial institutions (like whatever bank currently houses your retirement plan) are incentivized to hold onto your money because that’s how they make money. They need access to your dollars (whether in a checking account, savings account, or retirement account) so they can shuffle them around the global market generating more dollars.

When you roll over a 401k retirement plan to a new financial institution, your old bank no longer gets to profit off of your little retirement nest egg. And that bums them out! So while I’m not saying they deliberately make it hard for you to roll over a retirement plan… they also don’t have much motivation to make the process easy, transparent, and fast.

Previous employers don’t have to be helpful

Likewise, your old employer doesn’t necessarily have any motivation to help you with the process. Especially if you were fired, laid off, or if the company went out of business. How are you supposed to contact your old HR department for help with a 401k rollover when that department literally just… no longer exists?

To be fair, some employers make 401k rollovers or direct transfers mandatory when an employee leaves the company. But it’s far more likely that they just ignore your retirement plan (and you) after they complete your exit interview.

The process is stuck in the past

The 401k rollover process is also… weirdly manual. It almost always involves several phone calls, literal paperwork made out of literal paper, and fax machines or scans. And again: NOTARIES. In the digital era, when we’re used to doing everything online, sans tree pulp, it feels very backward and analog.

In researching this article I scrolled through plenty of threads bemoaning the nightmare of inconvenient 401k rollovers. If you want to get your solidarity-in-the-face-of-bureaucracy on, here are some of my favorites.

What happens if I don’t roll over my 401k?

For the most part, nothing happens if you don’t roll over your old 401k. There are exceptions, but in general you won’t face horrific fines or get taken to court or tracked down by retirement plan bounty hunters intent on holding you hostage until you fill out some forms in triplicate.

So it’s pretty easy to just go about your life and forget all your old retirement plans as you job hop away into the sunset. But you should still do the rollover anyway.

Why you should roll over your old 401k

1. The opportunity cost. Compound interest—the Eighth Wonder of the World according to Our Lady of Berkshire Hathaway, Warren Buffett—requires two ingredients to work its magic: money and time. If you leave an old retirement plan to languish, you’re giving it time… but you aren’t giving it any more money. Your deposits stop when your paychecks do. You’ll still earn compound interest, but that interest won’t benefit from the fattening influence of regular fresh and meaty deposits.
2. The fees can add up. Even though you’re no longer depositing cash on the monthly, you still could be paying servicing fees. And those are therefore coming straight out of whatever dividend interest you earn.
3. If you don’t do it, they’ll do it for you. Some companies don’t allow former employees to keep a retirement plan open past a certain point. So if you don’t roll that bad boy over, they’ll do it for you. And they won’t be nice about it: they could just mail you a check minus the taxes and 10% early withdrawal fee whether you like it or not.
4. Your old retirement plan might suck. Every retirement plan servicer is different. Why would you want to keep money in your old 401k at Bank A when their fees are way higher than those Bank B is charging for your new 401k, or the pennies Bank C is charging for your glorious Roth IRA???

How to roll over a 401k: The basics

There are two ways to take your old retirement plan with you when you leave an employer:

1. You can do a direct 401k rollover into a new 401k. This means rolling your old 401k from your old company into your new 401k at your new employer. Rinse and repeat next time you job hop.
2. You can roll the 401k over into an IRA (Individual Retirement Account). That way, you won’t have to move it again next time you job hop, and you’ll be able to make personal decisions about your retirement plan without being beholden to the retirement plan servicer your employer chooses.

Obviously, the first method isn’t an option for those leaving traditional employment. Nor those taking a break between jobs. Nor even those whose new employers don’t offer retirement plans or whose new 401k plan doesn’t allow for rollovers. But there are advantages to both!

Personally, I’ve preferred rolling my old retirement plans into my existing Roth IRA with Vanguard. I like that I have complete control over my options there, and it’s not associated with any employer, past or present. It also means that everything is nicely consolidated. If I ever move on from my current job, I’ll probably pour my current 401k into my Roth IRA as well.

More Bitchy wisdom on retirement plans:

• Dafuq Is a Retirement Plan and Why Do You Need One?
• Investing Deathmatch: Traditional IRA vs. Roth IRA
• Procrastinating on Opening a Retirement Account? Here’s 3 Ways That’ll Fuck You Over.
• Ask the Bitches: “Can I Quit With Unvested Funds? Or Am I Walking Away From Too Much Money?”

Enter Capitalize: Your 401k rollover concierge

Friends… I have a confession to make. It has taken me four calendar years to do my 401k rollover from my first employer. I’m not proud, but I am firm in my excuses. Because (see above) rolling over a 401k is hard.

I had several false starts. My former employer offered me zero help in running the gauntlet of a 401k rollover. And every time I made an attempt, I was sent a mountain of paperwork (literally, because they expected me to print it, fill it out, and fax it back like some kind of animal) with no guidance and no instructions. So I procrastinated and did fuck-all on my own to consolidate my retirement funds.

Then, like the forces of goodness and light galloping to the rescue, I discovered Capitalize.

What does Capitalize do?

Capitalize is a third party company that takes you gently by the hand and guides you lovingly through the 401k rollover process.

They also help you find any old retirement plans you might have left behind, even if you forgot where they are, who handles them, and any passwords you need for access. They handle the paperwork, the phone calls, the scheduling, the faxes, mailing checks, and all those wild notaries.

Specifically, Capitalize will roll your old retirement account over into an IRA. They don’t do direct 401k to 401k rollovers, so you’re on your own there if that is your preference.

If you don’t yet have an IRA to roll your old 401k over into, not to worry! Capitalize will help you find and open an account too. They’ll walk you through the benefits of each of your potential new accounts to make sure you choose the financial institution that best suits your needs. And they do it all quickly, kindly, painlessly… and for free.

It’s a bit like being taken under the wing of a downy soft arctic ptarmigan of fiduciary responsibility and nestled deep within the warm feathers of its monetary knowledge.

How does Capitalize handle your 401k rollover?

Bitch Nation, you know we are extremely picky about sponsors and affiliate marketing around here. Capitalize has passed the sponsorship muster, so if you click the links in this article and work with them, we’ll get paid. Still, I wouldn’t be recommending you handle your 401k rollover through Capitalize unless I’d gone through the process myself. And I have!

So I shall now walk you through my personal experience. Overall it was less this:

… and more this:

Capitalize’s 401k rollover steps

1. Go to Capitalize’s website and fill in some basic info.
2. Schedule your phone call between your Capitalize rep and your retirement fund. They’ll give you a list of dates and times to choose from, then handle the logistics while you go make yourself a snack.
3. At the scheduled time, answer some simple questions on the phone with the loving and carefree guidance of your Capitalize rep. (Julia was heckin’ delightful. She translated all the financial legalese for me in real time, and answered my questions, and advocated for me with the rep from my 401k servicer.)
4. Receive some emails with some documents for you and your spouse (if you’re hitched) to electronically sign. Sign ’em! At the same time, they’ll hook you up with a notary you can meet online??? Like a civilized person???????
5. Wait a few days for Capitalize to send the money to your rollover account. Check your fat new balance once the rollover’s complete!
6. Bask in the knowledge that at no point were you stalled by confusing instructions, forced to start over due to bureaucratic shitfuckery, nor ghosted by a self-important pencil-pusher.

What’s the catch?

Capitalize will handle your 401k rollover entirely for free. It costs you zero dollars, which is my favorite price. And no sacrifices of cute barnyard animals are required!

If you owe any taxes on the rollover (which can happen if you roll the money over into an account with a different tax structure), they’ll show you how to pay. But in general, no money should leave your pockets during this process with Capitalize.

All of which should have you asking, “What’s the catch, Bitch?” because you are a smart and savvy manager of your own money and we are very proud of you! Always be asking for the catch! Always be questioning how someone else is profiting from you!

Capitalize doesn’t make its money on individual customers, which is why it’s free to you and me. Instead, they are paid a commission by financial institutions when one of their customers opens a new rollover account.

For example, if I had asked Capitalize to open a new IRA to roll my 401k into, the bank with which they opened the IRA would’ve paid them. Essentially, it’s a finder’s fee: Capitalize is bringing new customers to IRA providers, and those providers are paying for the lead.

If, like me, you’ve already got an IRA set up, then Capitalize makes no money on your 401k rollover. And from what they told me, they’re cool with that! Because a) right now they’re a relatively new service and they’re still trying to get their name out there, and b) they make enough on new IRA customers to fund those of us who are ahead of the curve.

Don’t leave your 401k to languish—roll the damn thing over

We miss a lot of financial advantages through inaction. The opportunity cost of leaving a 401k behind, never to think of it again, can be worth tens of thousands in compound interest. Yet it’s easy to do nothing! So much easier than doing something!

So if you do one good thing for your finances this week… let it be to roll over your old retirement plan (or plans, you brilliant little job hopper you). If you’d rather go through the gauntlet all by your onesies, feel free. But I hope I’ve convinced you of how much easier the process can be with the help of Capitalize. I’m Bitch enough to admit that without them, I probably would’ve waited another four years (at least) to do my 401k rollover.

Readers, am I being a drama king for focusing on how annoying a 401k rollover can be? Or have you, too, experienced the hateful bureaucracy of rolling over a 401k? Are you a rare and exotic notary public? Let’s turn the comments section into group therapy. Tell me of your experiences so we can all compare notes!