Love It & Leave It. - managing a 401k - Brief Article

Kiplinger's Personal Finance Magazine, June, 2000 by Mary Beth Franklin

RETIREMENT | When you leave a job, sometimes it makes sense to leave your 401(K) behind.

JOE OBERTING of Napa, Cal., is the Johnny Appleseed of 401(k) plans. He realizes how important it is to keep his retirement savings growing, even when he changes jobs, but sees nothing wrong with leaving his money to flourish in separate pots.

When you switch jobs you have several options for your 401 (k) money. You can roll it into an IRA or into your new 401 (k) plan if the new company allows it. Or if you have at least $5,000 in your account, you can leave it in your old plan.

Of course, you could cash out your 401 (k), but that's a bad idea. Not only will you have to pay income taxes on the funds (plus a 10% penalty if you're under 55), you will also jeopardize your retirement savings.

Over the past few years, Oberting has had to decide several times what to do with his 401(k) money. When MCI bought Oberting's employer, SHL Systemhouse, in 1995, he decided to leave the money in the old 401(k)--now worth more than $38,000--and start a new one with MCI. He had amassed $53,000 in that account when EDS bought his division last year. Again he decided to let his money sit in the old account because he liked the investment choices and the funds' performance. The account is now worth more than $115,000.

Oberting, who contributes the maximum 15% of his salary to retirement savings, had saved $7,000 in his new EDS 401(k) account when the company announced that it was shutting down operations in Napa. Since his family didn't want to leave the area, Oberting resigned and took a job with a local pharmaceutical manufacturer, and he will be eligible to start contributing to yet another 401(k) plan this summer.

"It's a way to diversify my investments without paying any management fees, and I have access to my accounts by phone or the Web," Oberting explains. And if he gets tired of monitoring the separate accounts, he can consolidate them into one IRA.