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Wednesday, November 29, 2023

Rolling Over Your 401(k)

Let’s say you have a 401(k) account at Betterment, but you also have a 401(k) from a previous employer. What should you do with it?

You have four choices with respect to 401(k) account from a previous employer:

  • Keep it in your previous employer’s 401(k) plan (assuming previous employer’s plan allows)
  • Roll it over to your current 401(k) plan at Betterment
  • Roll it over to an Individual Retirement Account (IRA) to Betterment or elsewhere
  • Take a cash distribution

It’s important to consider all of your available options and to understand the implications of each.

Only the first three options keep your money working for your retirement, so taking a cash distribution should be a last resort. Even if you don’t have a huge balance today, thanks to the effect of compounding, your account could grow into a nice chunk of change by the time you retire. Plus, taking a cash distribution is a taxable event, meaning you’ll owe taxes now and might be hit with an early distribution penalty on top of that, courtesy of the IRS.

Let’s look at the other alternatives.

Keeping your money with your previous employer’s plan

Although there are times where it can make sense to keep your 401(k) where it is, doing so may not be in your best interest due to high fees, poor user experience, and a lack of tools and resources. In addition, having a 401(k) account that’s invested in different funds than the 401(k) plan you’re currently contributing to can make it difficult to have a unified investment approach.

Rolling over your 401(k)

The two remaining choices are either to roll over your old 401(k) to an IRA or to your active 401k at Betterment. Choosing between an IRA or 401k can come down to many factors, such as: fees, investment options, certain tax planning considerations, etc. Choosing to rollover your old 401k to an IRA or to your active 401k is generally the best option for most individuals. Furthermore, you could rollover your old 401k to an IRA provider other than Betterment, but we believe there are lots of reasons why choosing Betterment as your IRA and/or 401k provider is the better choice.

At Betterment, it’s different.

  • Simple, efficient, transparent, automated, individualized processes. In just a few clicks, you can start the rollover process to Betterment, whether you’re moving your money to your Betterment 401(k) account or a Betterment IRA. This means you’ll be set up with the appropriate investment strategy, and instantly receive a personalized set of rollover instructions via email. There is zero paperwork required from Betterment, though your previous provider may require paperwork to initiative the rollover.
  • Consolidated investment strategy. By having all of your retirement assets at Betterment, you’ll be able to invest in the same funds and a single, coordinated strategy. This makes it easy for you to monitor your progress and to rest assured that your investments are not competing or cancelling out one another.
  • Low cost with flexibility. At Betterment, our management fee covers everything and is one of the lowest in the industry. The low-cost investments (ETFs) we invest in are among the lowest available to investors. Plus, you can choose from multiple portfolio strategies, including three different Socially Responsible Investing (SRI) portfolios.
  • Holistic view. Betterment’s investment platform allows you to see all of your saving goals in one place, making it easy for you to keep track of your investments.
  • Advice and hands-on customer service. With Betterment, the corresponding investment strategy can align with your specific retirement plan. It can even work in coordination with the rest of your retirement funds. Not only does the website itself provide you with personalized financial advice, we also have a team of CERTIFIED FINANCIAL PLANNER™ professionals and an easy-to-reach customer support team.

If you are considering rolling your old 401(k) to another institution, be aware that you may be subjected to lots of paperwork, long waits, and clunky processes. Make sure you understand the fund fees along with other fees that may apply when you open accounts, close accounts, change your allocation, make trades, etc.

We automate the rollover process as much as possible.

Whether you are rolling over to a Betterment IRA or 401(k), not only does Betterment make the rollover process simple and easy, we also make sure that your funds are placed into a globally diversified investment portfolio that fits your personalized retirement needs—all at a low cost.

With just a few clicks inside of your Betterment 401(k) account, we will get the ball rolling for you and automatically open up new accounts (Traditional or Roth), depending on what type of 401(k) monies you are rolling over. We do not need any paperwork from you.

Then, we’ll email you a full set of personalized instructions for how to proceed with your rollover, including the next steps to take and the information you need to complete your rollover. Some providers may have rollover paperwork that must be completed or even ask you to give them a call to complete a rollover. If so, there’s no way around that. All of the information you’ll need is included in the Betterment email, including information for how your previous employer’s 401(k) provider should make out the rollover check and where they can mail it to.

We will notify you via email as soon as your rollover funds are deposited into your Betterment account.

You can roll over more than just a 401(k).

It’s important to note that this process does not just apply to 401(k)s. It applies to any employer-sponsored plan that you hold from past employment. This includes pensions, 401(a)s, 457(b)s, profit sharing plans, stock plans, and Thrift Savings Plans (TSPs).

Ready to Roll?

We designed the rollover process to be as smooth as possible. If you have any questions before or during your rollover process, we have a team of customer experience associates available via phone, email or mobile messaging to sort out any questions or concerns you may have.


Betterment is not a tax advisor, nor should any information herein be considered tax advice. Please consult a qualified tax professional.

This article is being provided solely for marketing and educational purposes. It does not address the details of your personal situation and is not intended to be an individualized recommendation that you take any particular action, including rolling over an existing account. When deciding whether to roll over a retirement account, you should carefully consider your personal situation and preferences. Specific factors that may be relevant to you include: available investment options, fees and expenses, services, withdrawal penalties, protections from creditors and legal judgments, required minimum distributions, and treatment of employer stock. Before deciding to roll over, you should research the details of your current retirement account, consult tax and other advisors with any questions about your personal situation, and review our Form CRS relationship summary and other disclosures.

If you currently participate in a 401(k) plan administered or advised by Betterment (or its affiliate), please understand that you are receiving this email solicitation as part of a general offering and that neither Betterment nor any of its affiliates are acting as a fiduciary, or providing investment advice or recommendations, with respect to your decision to roll over assets in your 401(k) account or any other retirement account.


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