Switching jobs: Should I wait to roll over my 401(k)?

@Money September 2, 2011: 4:02 PM ET

NEW YORK (Money) -- I switched employers recently and I want to move my old 401(k) balance into my new plan. But I'm afraid that if I do, I might miss out on gains if the market moves into more bullish territory while the transfer is taking place. Should I make the move now or wait until the market settles down a bit? -- Mike S.

Your question comes up a lot, especially during periods of market turmoil.

Typically, people who are worried about transferring money from an old 401(k) to a new employer's plan or IRA rollover have two main concerns.

One is the fear that their account will fail to benefit from a market rally if one occurs during the transfer. The other is a fear that they should wait for their already-battered 401(k) balance to recover before making the move.

Let's take these one at a time, starting with your anxiety about missing out on a market advance. I put this concern into the "don't obsess over what you can't control" category.

Fact is, you have no power over how the market behaves -- not just while you're rolling over a 401(k), but anytime. Similarly, you can't dictate how long it will take to get the money in your current 401(k) to your new plan.

Simplify your retirement savings

That said, you can -- and should -- take steps to help the transfer go more smoothly. For example, you'll want to touch base with the administrator at your new 401(k) plan to make sure that it actually accepts money from other plans (most do, but there can be restrictions) and determine how best to go about making the transfer.

Most likely you'll be told to have the administrator at your old plan do a trustee-to-trustee transfer so the money goes directly into your new 401(k). Not only is this more seamless and direct, it also gets around the hassle of your old 401(k) plan possibly having to withhold 20% if it simply cuts a check to you.

That would be a drag, as you would have to come up with that 20% to complete the rollover, and wait until you file your taxes for reimbursement.

You should also contact the administrator of your old plan. Start by making sure your former employer has notified your old 401(k)'s record keeper that you're no longer with your old employer and thus eligible to move your money.

"You'd be surprised how often that hasn't happened," says Sarah Houston, who handles transfers into 401(k)s overseen by Vanguard. Then explain what you intend to do and find out what paperwork is required or, if an online transfer is an option, how to navigate that process.

How long will my retirement savings last?

This will reduce the chances of a snafu at that end. Beyond those steps, there's not much you can do. It's going to take however long it takes, which might be two to three weeks.

But your money isn't lying fallow during that entire time. If your old plan cuts a check to your new 401(k), you're typically out of the market only for the time it takes for the check to wend its way through the mail and into your new 401(k) account.

So maybe a week or so. And if your old 401(k) can make the transfer electronically, your money may be out of the market only a couple of days. Either way, though, it's not as if you can somehow sidestep this procedure.

If you want to get the money out of your old 401(k) -- which is usually, although not always the best move -- you'll have to go through this process. Don't fool yourself into thinking that you'll be better off by postponing the transfer until the market settles down.

Hiding in cash. Is it time to get back into the markets?

That implies you know when the market is going to be flighty or placid. Unless you've got a crystal ball, there's no way for you to know that.

And while you're concerned about possibly missing a rally, keep in mind that's it's equally possible that the market could go down while you're moving your stash, in which case you benefit by being out of the market.

The bottom line, though, is that once you've done the upfront work to facilitate the transfer, you've done all you can do. And in the grand scheme of things, it's highly unlikely that being in or out of the market for such a short period of time is going to make or break your retirement.

As for the second issue -- whether to transfer an old 401(k) while it's value is down or wait until it recovers -- the answer is that it makes no difference when you make the move.

Assuming you're sticking to the same overall investment mix -- that is, if your current 401(k) is, say, 60% in stocks and 40% in bonds, you'll retain that blend in your new 401(k) or IRA -- you'll be in the same position whether you wait or go ahead, regardless of what the market does. Click here to see why that's the case.

You'll still face the timing issue you raised in your question. But as I noted, that's no reason to hold off. Whether your 401(k) is up, down or even, you might as well just go ahead and do the transfer. So stop worrying about things you can't control and focus on what you can.

Like contacting your former and current 401(k) plans to grease the skids for the transfer and, even more important, making sure you're saving enough and investing wisely.  To top of page

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