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401k 101: I’m changing jobs.. Help!


So, you’ve left your job…  You just realized how many complicated financial decisions you will have to make in the very near future. It’s likely that the last things on your mind are learning how to rollover your 401k and retirement planning. However, these are probably the most important things you need to address. So, it is very important to understand your options.

DreamWork Financial Group has developed the following Road Map to help guide you along the sometimes confusing process of transitioning jobs, rolling over your 401k, and retirement planning.

retirement roadmap infographic showing you each step to roll over your old 401k or 403b

Transitioning your 401k to a Fee-Only Investment Advisor is a very smart financial decision.

Should I rollover my 401k.  What do I need to know?

 Picture of a woman in raining money. It is suggested that she just withdrew her 401k.

What should I do with all this money?

This first thing you should know when rolling over your 401k is that you are allowed to take a distribution of your vested balance.

It’s probably very tempting to withdraw your 401k funds and go on a shopping spree. But, we both know the smart thing to do is to rollover your 401k (rolling over your 401k means transferring the funds to another qualified account and plan). If you have over $5000 in your vested balance you could leave it in your employer’s plan until you hit retirement age. However, this could limit you to your former employer’s investment options. Why on earth would you do that when you can transfer to another account and potentially invest in whatever makes the most sense to you.

I’ve decided that I should rollover my 401k.. What now?

Road sign that says reality check ahead

After careful though you have decided rolling over your 401k is the smartest thing to do. Now, where are you going to transfer it? Who is going to manage it?  There are still a few more decisions to make and the most important question is “who will manage my retirement account.” Everywhere you look there are billion-dollar financial management corporations advertising to you. They are hoping that you will call them at this very moment. They believe their ads make them appear to be the best financial advisors available. There are problems with these types of advisors.  First, those ads are EXPENSIVE. Guess who pays for those?  You guessed it.. their clients.  They also maintain numerous “brick and mortar” branches on almost every corner. Upon visiting, you to find out that your advisor, at this local branch of “billion dollar financial”, was waiting tables at the Olive Garden the week before you met him. In addition, be aware that he or she has been trained extensively on selling you specific products (usually annuities or loaded mutual funds). And don’t be foolish enough to believe they haven’t rehearsed a canned rebuttal to overcome any objection you will have to purchasing their preferred products.

The billion dollar investment advisor conglomerates are not for me.. Who can I trust?

Two gentlemen shaking hands apparently in closing a business deal. TeamWork Makes DreamWork. “TeamWork Makes DreamWork”

Who can you trust? That is a great question.  I would look for somebody that is not compensated based on simply selling you a product. You need to make sure that the way your advisor is compensated makes sense to you. Don’t settle for someone that is too busy to return your call within a business day. And certainly don’t settle for an advisor that can’t answer questions in regards to the market. Sadly, I have seen advisors who handle tens of millions of dollars that couldn’t answer even the most basic market questions. I’m talking about the questions that I bet most of you reading this know.  For example: Who is the fed chairmen? What does QE mean? Or even worse, what is the stock symbol for the company you work for?

“TeamWork Makes DreamWork”

Look for someone with experience. This is the most important trait in investing. Because taking classes and earning advanced degrees are all well and good (actually it is very important), but the school of hard knocks is where the best financial advisor is made. Nothing teaches you a lesson like losing your own money! This advisor will truly be able to teach you so you can understand the markets and make smart investments. No book or class can prepare you for an unexpected, irrational market event. This is why I would go with someone who has had skin in the game and has learned the markets by putting his or her own money at risk. Finally, look for someone who will work with you and for you, not dictate the investments that they need you to make.

Fee Only Investment Advisors (a.k.a. Fee Only Financial Advisors)

Why should I choose a Fee Only Financial Advisor?

Picture of a tree and sky with the words "Why Choose a Fee-Only Investment Advisor? No Conflict of Interest."

Now that we have narrowed down the personal traits to look for, I would suggest looking for a fee-only advisor, usually a Registered Investment Adviser (RIAs). You may have heard Dave Ramsey speak about Fee Only Investment Advisors as his preferred type of wealth management. I personally agree with him. Fee Only Investment Advisors are compensated based on a percentage of assets, so they will typically steer you towards low-cost or no-load investments. Lower costs = more money for you. This ensures that your interests are aligned with your investment advisor. If you are not happy, you can simply transfer your account and rest easy knowing you didn’t pay him 5% upfront to sell you something. RIAs also have a reputation for going the extra mile in order to get to know their clients. This is good for you because when you have an unexpected life event, you can simply call them. They will answer your call and be able to help you to determine your best financial response. They know you , so you don’t have to worry about being fed some “used car salesmen” line.

In conclusion, when you change jobs and feel overwhelmed by your 401k rollover options, find an appropriate financial advisor. Make sure you take the time to find the best financial advisor for your personal situation. As you noticed there are tons of us.  Due to recent events, you are probably more skeptical of this industry than ever before (and with good cause). Please seek out an advisor with plenty of experience, great educational background, the heart of a teacher (another shout out to Dave Ramsey), and most importantly, someone you can trust.

Anyway, I hope you have enjoyed this post. If you are in the process of changing jobs, I would be honored to speak with you and find out how to best help you during your transition. Contact DreamWork Financial Group today.

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