Preview:

If you’ve recently changed jobs, chances are your old 401(k) is still sitting right where you left it – out of sight and out of mind – and it could potentially cost you.

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More About This Episode:

In this episode, Ryan answers a question from a pilot who recently made the jump to a major airline and wants to know if he should roll over his old 401(k) or leave it where it is.

Ryan breaks down the pros and cons of keeping the 401(k) with a former employer versus moving it into an IRA, and what smart investors should consider before making the call. Find out why more control, better investment options, and fewer hidden fees often make a direct rollover the smart move. You’ll also hear why it’s critical to avoid triggering taxes or penalties during the process—and how market timing, age, and consolidation all play a role in making the best choice.

Here’s what we cover in this episode:

📂 What happens when you leave an old 401(k) behind

🔁 Why a direct rollover is usually better than a transfer

⚠️ Common mistakes that trigger taxes or penalties

✈️ What pilots need to know about retirement account strategy

0:00 – Intro

0:31 – Listener question

2:31 – Tax implications

4:31 – Cons of Target Date Fund

6:34 – Downtime during the rollover

8:26 – Does age matter?


Resources:

Retire Pilots – https://retirepilots.com

Get your FREE Retirement Toolkit – https://bit.ly/3ZmZsaX

Pilot Tax – https://pilot-tax.com/

The Pilot’s Advisor Podcast is also on video. Watch & Subscribe on YouTube: https://bit.ly/3EIEBW2

Connect with Pilot-Tax: https://pilot-tax.com/

Episode Transcription:

(Note, this is an automated transcription. Please forgive any errors.)

Walter Storholt 

If you’ve switched jobs in the past couple of years, chances are you’ve got an old 401 K sitting around somewhere. Maybe it’s collecting dust and possibly also collecting fees. Well, today we’re going to answer a listener question about what to do with an old 401 k, when does a rollover make sense? And how can you avoid some of the common pitfalls when making a switch like that? I’ll grab Brian and we’ll get started. Walter storholtz back with you on another edition of the pilots advisor alongside the pilots advisor himself, Ryan Fleming and Ryan, I’m ready for this listener question on today’s episode from William. This should be a pretty good one who sounds like he’s, you know, kind of moving up in the world with a new job and now at one of the legacy carriers, and this will be pretty cool to see what his question is all about. William says, I recently left envoy where I had a 401, K, and I keep hearing that I should probably roll it into an IRA, but I don’t really know. Why Are there benefits to doing this, and what happens if I just leave it where it is. And William says he’s now at American, so congrats on the new position and the new carrier there. William. Yeah,

Ryan Fleming 

William, that’s a great question. I would say, you know, this happens to a lot of pilots. If they’ve flown out regional airlines, or even those military pilots, they might have their tsp sitting out there. And once you move on, there’s, I really think that you should roll it into your IRA or Roth IRA, depending on the tax consequence of the money, which we can get into the details of that. And there’s many reasons for doing it. Number one, you don’t want to have a bunch of 401, K is just hanging out there. We call that the financial junk drawer. We want to keep things consolidated and organized.

Walter Storholt 

Just feels good. Yeah, that’s a decent reason, right there, right?

Ryan Fleming 

Well. And, you know, at American, you’re, you’re at fidelity, and you, maybe you want all your money right there as you log into fidelity, so you can see it consolidated in one place. Now, I don’t recommend you rolling it into the new 401, K. I recommend you doing what we call a direct rollover into a traditional IRA and Roth IRA. And the main reasons for that is, you know, overall, as you’re going to have a lot more investment choices, you’re not going to be limited to those investment choices that they put in any of those 401 K’s. Also you get, yeah, you can work with an advisor, but there’s a lot of, you know, fidelity gets paid a lot of money to manage some of these 401 K so there’s a lot of hidden fees that people don’t talk about in those 401 K’s. And so you want to actually get your money outside of the 401 K and into what we call the individual retirement account, where it’s a lot better off for you and you don’t have any of those other 401, K fees.

Walter Storholt 

Okay, makes a lot of sense. If somebody like William decides to do that rollover, you mentioned there being some tax implications to be concerned about. So what do we need to be on the lookout for

Ryan Fleming 

there? Yeah, absolutely. You don’t want to just take your money. If you do that, you’re going to get hit with a big 10% penalty. You’re going to be very upset. All this money has been earmarked as retirement assets or inside a qualified account, so your checking account, yeah, don’t put in your checking account. So, so what you want to do is something called a direct rollover, and that direct rollover should have no tax consequence, and one of two things is going to happen. They’re either going to send a check to the new custodian, where you have your IRA or Roth IRA set up, or they’re going to send it to you at the house. You can sign it, but then we want to get it in the mail off to the new custodian. And this is why it’s so important to work with an advisor or somebody that knows what they’re doing, because you could really screw this up if you put it into your checking account, or you put it into the wrong individual retirement account, you got big problems, and then you’re gonna have to try to figure out how to to fix that, or just just take the hit. It’s

Walter Storholt 

kind of like those beneficiary designations. It’s such a simple thing that can cause a big issue if you get it wrong, just as simple as taking more than, what is it like, 30 days or something to make this all take place? If you wait 40 days, you’re out of luck and you’re in trouble at that point. Well,

Ryan Fleming 

yeah, and it becomes a taxable event at that point. And then, you know, there’s no going back, yeah,

Walter Storholt 

once William decides to roll over that 401 k, if that’s the route that he takes, how do you help somebody figure out, then what to invest it next. You mentioned maybe more investment choices. What does that process look like?

Ryan Fleming 

Well, yeah, there’s a lot more that we can do on the outside of a 401, K, but you know, of course, that process is going to say, well, how old is William? How much does William have saved already? So there’s a lot more the details that go into that question to figure out what his asset allocation is, and exactly how aggressive of a portfolio we might put them in. So I think that’s definitely one of those things. It’s a little bit more case by case, but we can definitely help you do this.

Walter Storholt 

Do you see a lot of people in their old 401, K, it might just be like in a target date fund, but then you’re looking to do something more sophisticated with the dollars, when you have the ability to invest in more of those options inside potentially an IRA, do you usually then move away from kind of that standard pick that most people have?

Ryan Fleming 

That’s a great question. And absolutely, as a matter of fact, even inside a 401 k, if I see somebody that’s in a target date fund or they’re just in the s, p, I know that we can do much better than that. And. Lower their risk, and I can show them via numbers. So if you’re in a target date fund, you want to reach out to us, and we can, you know, have a historic track record that far outperforms those target date funds. Those target date funds really don’t know anything about you. They’re normally heavily weighted in US large cap, where you’re just living and dying, by what that does. And then, of course, outside the four 1k with the so many more investment options, you definitely don’t want to be sitting in a target date fund.

Walter Storholt 

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Ryan Fleming 

you know, the market has gotten a lot more volatile, where it moves a lot more day to day. So I think you’re overthinking it a little bit, because most of this is long term money. So the one or two days here where it gets, you know, takes for us to get this done is not going to have a massive effect on your retirement 30 years from now. But, you know, maybe doing something like that when the market’s a little bit less volatile might be a thing. Or I recently did something that’s called an in service withdrawal, same kind of thing where you have to liquidate things and move it, but with what’s going on right now, a lot of people don’t want to participate in the market. They think that it’s going to continue to go down, or they think, oh, on this date, I know things are going to get a little bit ugly. And if they did have a desire to go to cash anyway, well, it’s a great time to go ahead and move the money, and then we can reallocate to get you back in the market, possibly buying when the you know, the markets pulled back a little bit.

Walter Storholt 

So almost, if the market happened to go down while you were transferring, it gives you some options and some leverage there, yeah, to make your reinvestment choices so well, it makes all this sense.

Ryan Fleming 

And the reality is, the market is completely unpredictable. Those individuals that try to predict the market end up hurting themselves. We can see where the trend in the market analysis is, but day to day, I mean, it is unpredictable, and I find that when you try to do that. You know, over the long term, at least, you’re going to hurt yourself.

Walter Storholt 

This might be an easy one last question about the specific of rolling it over. Does age matter? I understand the investments that you then help someone choose are going to matter, but if I’m 30 versus 60, does it really matter in this rollover equation or conversation,

Ryan Fleming 

not really at all. If you have an old 401, K, anyone can do a direct rollover. It’s kind of like cleaning house and getting things cleaned up, where it’s a little bit different. If you’re still working for the company, 59 and a half is your actual retirement age. So there’s a lot of options that open up for you once you reach the age of 59 and a half that you can do even while still being employed at that company. So that’s the magic number where you have a lot more options, 59 and a half. And then we can look at doing some in service withdrawals and some other things that a lot of other individual, other individuals, don’t have the option to do, or else they would have got a 10% penalty.

Walter Storholt 

Okay, so the older you get, the more options you get. But there’s certainly no magic age to do the rollover. Just be aware that you’ve got some more moving pieces maybe at your disposal if you’re hitting that that 59 and a half 60 year old age, excellent. Well, good details on all of those things. Ryan, there you have it. Hopefully that answers your question. Well, William, if you’re in a similar situation to William and you want to reach out and get a review of your financial plan, see where you are, how you can put together a better plan for your future. The best place is to start by ordering Ryan’s retirement toolkit. We’ve got a link for it in the description of today’s show that’s going to allow you to read Ryan’s books, tap into some excellent reports, some data driven material that’s going to really help educate you about some of the most important foundational things. Things for retirement, specifically for pilots and those in the industry. So check that retirement toolkit out as your starting point, and then you can dive into the nitty and gritty of your financial plan. That’s all at retire pilots.com and we’ve got a link in the description of today’s show for you as well. Ryan, thanks for tackling this question today. Appreciate it.

Ryan Fleming 

Always enjoy my time with you, Walter. You take care you as well. This has

Walter Storholt 

been the pilots advisor. We’ll see

Speaker 1 

you next time. Information is for illustrative purposes only and does not constitute tax investment or legal advice. Always consult with a qualified investment legal or tax professional before taking any action.