Can I Have Two 401(k) Plans at the Same Time?

by Maggie McCormick

Many employers offer 401k plans to their employees, and if you've worked for more than one employer, you may find yourself with multiple 401k plans. There's no reason why you can't have more than one 401k plan at any given time, but it may not be the smartest financial move. Note, though, that the maximum contribution limit of $16,500 as of 2011 ($22,000 if you are 50 or older) is a combined limit for all 401k plans you are participating in.

Advantages

You may be very happy with the plan management and performance of the company holding your previous 401k plan. Your new employer may offer plans through a different financial company. Keeping your old 401k plan where it is allows you to keep the same portfolio, while opening a new account allows you to take advantage of tax-deferred savings and employer contributions from the new company.

Cost

In most cases, there are fees associated with maintaining a 401k plan, particularly if the amount of money is less than $5,000. It's important to understand how much you are paying for each account to see if it's worth paying double the fees to keep both accounts open.

Other Disadvantages

One of the major advantages of investing in 401k plans is to spread your risk over many different types of investments. With two accounts, you may be unknowingly invested too heavily in one particular market segment. If that segment takes a financial hit, so will both of your portfolios. it can also be confusing to keep track of multiple accounts. According to Bankrate.com, financial companies often assign junior fund managers to customers with low balances. With your investments spread between two accounts, you may have two separate junior managers; if you combined them, you may be eligible for a senior manager.

Combining Accounts

After looking at the details of your account, you may find that it's not beneficial for you to keep both accounts open. You can easily combine accounts by requesting a rollover of funds into the account with your new employer. To do this, contact the old fund management company to learn about the precise procedure. Many will have you fill out and sign a request form, although you may be able to start the process online or over the phone. Make sure that the company directly deposits the money into your new account, which helps you avoid paying taxes and penalty fees.

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