Can I Have Two 401(k) Accounts?

by Mark Kennan

The Internal Revenue Service allows for-profit employers to open an account and make contributions on your behalf. If you have the option to contribute to multiple 401(k) plans, or if you have the option to open a second account, knowing the limits, benefits and drawbacks can help you keep your retirement plan on track.

401(k) Accounts

You can have multiple 401(k) plans if you have, or have had, multiple employers that offer 401(k) plans. For example, if you work two jobs that offer 401(k) plans to their employees, you are entitled to maintain both accounts. Alternatively, if you used to work for a company that you started a 401(k) plan with, you would not need to close your old 401(k) plan before you could start another 401(k) plan with your new employer.

Cumulative Limits

Just because you have two 401(k) plans does not mean that can contribute twice as much -- the limits for contributions apply to all 401(k) plans you have. However, assuming the employer matches do not exceed the annual limits, you can benefit by splitting your contribution between the two plans so that you can take advantage of the full employer match. For example, if one company will match $5,000, and the other matches $3,000, splitting your contribution allows you to effectively double your contribution.

Keeping Your Old 401(k)

One of the times that you can take distributions from your 401(k) plan is after you leave your job. While you cannot continue to make contributions to a 401(k) plan with a company for which you no longer work, you do have the flexibility to take money out. However, if you are not at least 59 1/2 years of age, you will have to pay a 10 percent early withdrawal penalty. If you consolidate the money into your new 401(k) plan, you can only take distributions if your plan allows for financial hardships, and you meet the requirements, which vary from plan to plan.

Benefits of Consolidation

If you still have an old 401(k) plan or plans from previous jobs, you can benefit from consolidating them into your new 401(k) plan. By having just one 401(k) plan, you can limit the amount of paperwork you have to deal with, and make it easier to manage your accounts. In addition, if you have a larger account, you can avoid certain fees or have a more experienced broker deal with your account. Finally, consolidating your accounts will make it easier for your heirs after you die.

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