2013 Money Resolution #1: Find New Homes for My Orphaned 401k Accounts - a series

This month I finally dove into financial a project I had been putting off for too long:  I'm tracking down and rolling over the 401ks from my old jobs.

I know, I know . . .  yawn.  But wait!  Don't click away just yet!

Wherever there are stories of procrastination, attempts at making good on New Year's resolutions, and retirement planning (Retirement?  Ha! Hahahahahah!!!), something  worthwhile is bound to happen.


And in today's post, that something is all about compound interest and long hold investments. These are big, empowering and essential topics that are the bedrock of savvy investing, especially for young adults.


First, how did I get into this mess of having my financial business scattered all over?

It sort of just, um, happened?  I've had 4 "real" jobs since I got out of college.  For the record, I've had lots of gigs, hustles and side ventures over the years. What I'm including here as a job is a decently-paid pursuit that takes up at least 40 hours of my week, offers health insurance and doesn't require me to sing happy birthday to 3-year-olds or use a shop-vac to clean sewage off of animatronic puppets after the pipes back up. That happened, I swear.

Each of the "real" jobs I've had has offered a 401k.  I first learned about them during meetings led by men in suits that did not look like they would have anything to say that was of any interest to me. But there were generally cookies at those meetings, so I attended.

At one of those meetings someone said two wonderful little words that make up the most magical mathematical equation I've discovered since realizing that doubling the tax on a bar tab in California results in an almost perfect 20% tip.

What is this magical math, you ask? Drum roll please....

It's COMPOUND INTEREST!!!!  And it's pretty much the main reason you should start investing your money now, this minute, yesterday, and last year.

Compound interest is deserving of its own post, parade and fireworks show. And I'll be getting to that shortly.

But in the meantime, the quick and dirty on compound interest is that it adds the interest you earn on your principal investment back into the principal, so that from that moment forward the interest is also earning interest.

The reason compound interest is important to long-hold investors (like us!!) is that if you compound your interest over a longer period of time, your principal investment (i.e., your wealth generating machine) basically grows and grows, taking your net worth right along with it.

Stuff like this makes me happy.

And it also explains why I didn't like having my four little stashes of money in different places. I wasn't taking advantage of my opportunity to have a larger principal generating more interest, which would then compound and make even more interest, and on and on. Essentially, I'd been letting money get away from me for years.

So I'm taking action. And this is how I'm going to do it:

1. I'm going to identify what financial institutions hold my old 401k accounts. Employers use banks and other programs to administer their 401k programs. Once invested, your money can sit in that program forever, even after you leave your job (although you won't be contributing anything else to it, and any employer match you may have had will end).  It's easy to not pay attention to who holds your account (I'd even recommend it if you're still employed and actively adding to the account), but they do send quarterly statements, either written or on email, summarizing your account status.  I've saved a few of those statements over the years so I at least have account numbers. If I don't have a statement for a given account, I can always contact my former employer's HR department to ask for the 401k administrator information. 
2. Next, I'm going to call each financial institution that holds my dough.  I'll ask what steps I'll need to take to roll my money out of the 401k and into something else.  Each institution can have its own forms, questions, and protocols so you pretty much have to play by their rules at this step.  The odds are pretty good they'll seize the moment and try to pitch their own products in order to get me to keep my money with them in some form or another. That's fine with me because I'm still exploring my options.  
3. Then I'll find out how the institution wants to transfer the money. When I ask for a rollover I'll have to know what bank/brokerage I'm planning to use to hold my new account.  It may be possible for the banks to do an online transfer.  Otherwise, they'll send me a check made out to "whatever Huge Financial Institution I choose FBO (For the Benefit Of) ME" (I love seeing checks made out to ME!).  There is a chance they'll offer both online and check options and I'll have to decide which I like better.
4. I'll ask about any fees for discontinuing the account, and figure out how to pay them.  It isn't worth it to me to keep my money in an old 401k account simply to save the $70 transfer fee, but I'll need to know where that $70 is coming from. If they deduct it from the fund's cash holdings (if any), that's ok.  But if they want to debit me somewhere else I'd like to know that first.

What's up next? I'm working on picking what type of account I want to put this money into and what financial institution I want to use . . .  I wonder if they'd be willing to compete in a dance-off in order to earn my business?

So stay tuned.