The 401k Scatter

Real Conversations

One of the most common things I hear on calls with people planning retirement isn't a question about markets or taxes. It's an inventory problem, said almost apologetically:

"I've got a 401k at my current job, two more at companies I left years ago, and my wife has an IRA from her old employer. Should these all be... somewhere?"

I've had a version of this conversation many times with real people (details changed and blended throughout this letter so nobody is identifiable). A career in tech or engineering these days means three to five employers, and every job change strands another account. By the late 50s, a couple can easily hold five or six accounts across four institutions, each with its own login they check annually at best.

Here's what the scatter actually costs, and the two situations where consolidating is exactly the wrong move.

The quiet costs of leaving them scattered

Allocation drift. The 401k you set up in 2011 is still invested like 2011. Nobody rebalances an account they forgot the password to. I've seen old accounts sitting 100% in company stock, 100% in a money market since 2008, or in a target-date fund dated for a retirement year that came and went.

RMD complexity later. When RMDs arrive, IRAs can be aggregated (one withdrawal covers them all), but every 401k requires its own separate RMD from that specific plan. Three old 401ks at 75 means three calculations, three withdrawals, three chances at the 25% penalty for missing one.

Fee archaeology. Old employer plans carry whatever fund lineup and administrative fees the plan negotiated, and ex-employees have zero leverage. Some old plans are excellent. Some quietly charge 3x what the same exposure costs in an IRA. You can't know which until you look, and nobody looks.

Planning blindness. Every strategy in these letters (conversion ladders, withdrawal order, the Golden Window) requires knowing what you own and where. A scattered household can't answer the first question of any plan: what do we actually have?

The consolidation move

The default fix is simple: roll old 401ks into one IRA per person (rollovers are tax-free when done directly, custodian to custodian, never as a check made out to you). One login, one allocation, one RMD calculation, full fund menu, and every future strategy gets easier.

But "default" is doing real work in that sentence, because two exceptions can make the rollover a six-figure mistake, and both are irreversible.

Exception one: company stock in the 401k. If any old 401k holds employer shares with big gains, the NUA strategy (the concentrated-stock letter) can tax decades of appreciation at capital gains rates instead of ordinary rates. Roll that account to an IRA and NUA is destroyed, permanently. Check before you roll. Always.

Exception two: you might retire, or get laid off, between 55 and 59 and a half. The Rule of 55 (a topic I'll cover fully in a coming letter, and a real worry raised on more than one call) allows penalty-free withdrawals from your CURRENT employer's 401k if you separate at 55 or later. That door only exists inside the 401k. Roll it to an IRA and you're back to waiting for 59 and a half. If early retirement or a layoff is even possible, the current plan stays put until you're past the bridge.

This weekend's version

List every account, institution, balance, and rough allocation on one page (this alone puts you ahead of most households). Flag any account holding employer stock, and note whether the 55-to-59-and-a-half window matters to you. Then consolidate everything the exceptions don't protect.

The scatter isn't a moral failing. It's just what careers do now. But a retirement plan can't be built on accounts nobody can see.