It shouldn’t come as a surprise to say that a 401(k) is an incredible tax-advantaged retirement savings account when it comes to workplace benefits. But if you move companies or have more than one career, you might be wondering if you can have multiple 401(k)s – one for each of your new roles across various companies. How many 401(k)s can you have at one time?
Before you get in over your head with multiple retirement savings accounts, here’s what to know about the limitations and benefits of having multiple 401(k)s.
How Many 401(k)s Can You Have?
The truth is that you can have an unlimited number of 401(k) plans from previous employers, but you won’t necessarily be able to contribute to all of them.
Instead of making contributions to all accounts, you can only contribute to active plans that are from unrelated employers. For example, you may contribute to a standard 401(k) from your full-time job as well as a Solo(k) from your self-employment income.
The important thing to note here is that you face a contribution limit for the total contributions you make. In other words, it is tallied total instead of on a per-account basis. This might make it less appealing to have multiple accounts and can lead people to consolidate their 401(k)s.
Contribution Limits for Multiple 401(k)s
For 2024, the employee contribution limit is $23,000, which is shared across all plans. In other words, the annual elective deferral limits apply to the individual, not the specific 401(k) plan. You can split your deferrals across multiple plans or contribute all $23,000 to a single plan as you wish.
The employer’s annual contribution limits apply to each unrelated company. If you have multiple 401(k)s, your various employers could contribute to their company’s specific plan, up to the plan’s total contribution limit of $69,000.
For self-employed individuals with a Solo(k), you can contribute to your Solo(k) as both employer and employee. Even after you meet the individual employee contribution limit of $23,000 for 2024, you can contribute 25% of the overall company pay/wages/earned income to your own Solo(k) as an employer. This works out to be 20% of company profit, because the employer contribution is a tax deduction.
Individuals age 50 and older can also make a catch-up contribution of $7,500 beyond the limit.
Should You Consolidate Your 401(k)s?
The truth is that there are no easy and straightforward answers about whether consolidation is the best fit for your 401(k)s. There are benefits to both sides of the argument, so be sure to weigh your personal situation against some of these examples.
Diversification
One of the benefits of having multiple 401(k)s is that you can take advantage of diversification with your portfolio. Each account can maintain separate investment profiles with unique risks and goals. You can explore what works best for your portfolio by opting for new investment types and solutions when opening a new 401(k).
Lower Fees
Every account type will have different fees associated with its maintenance. Be sure to research what you are charged when opening a new 401(k) with a new employer. Lower fees might be a good reason to stick with the account you already have through an old employer. It can save you money that compounds over the years leading up to your retirement.
Harder to Manage
Beyond financial considerations, maintaining separate 401(k)s from many employers can add more hassle to your plate. Be sure to think through how many accounts you can reasonably juggle given that each one may require some degree of management. Taxes will be even more complicated if you potentially have to file multiple forms for each of your accounts.
Keep in mind that maintaining these accounts will also be more time-consuming. You’ll have to keep up with notices and login details for each account, making it challenging to see all of your invested funds at a quick glance.
On the other hand, consolidating your accounts will also take some upfront time investment as you fill out the proper rollover forms and communicate with the companies managing your accounts.
Tips for Managing Multiple 401(k)s
If you decide that the benefits of having multiple 401(k)s outweigh the potential drawbacks, then make sure that you put some serious effort into keeping them straight. Here are some of our top tips to help you manage multiple accounts.
Keep Good Records
Employees who switch jobs frequently may have a hard time remembering all the places where they’ve opened up a 401(k). This means that you need to set aside time to document all your past accounts so that you don’t forget about them.
Write up a document for yourself so you can see who is managing the 401(k), what your login credentials are, and what fees you face with the account. Make sure this information is stored in a safe, secure location.
Update Contact Information
One of the hardest aspects of juggling multiple 401(k)s is keeping up with notices. As time passes, your contact information will likely change. Make sure that you update all of your 401(k)s when something major happens like a change in mailing address, phone number, or email address. This allows you to get an alert if an older account changes policies or fee structures.
Calculate Contributions
While it may be beneficial for you to have multiple 401(k)s, you do have to be cognizant of how much you’re contributing across the board. Sit down and calculate or estimate your current level of contribution to ensure that you don’t exceed the maximum of what you can contribute annually.
You can split your own individual contributions between your plans however you wish, as long as it stays below the 2024 annual limit of $23,000. If one employer offers a contribution match while another does not, it would make sense to allot your individual contribution to the plan with the match.
Setting Up an Excellent Solo(k)
At Retire4one, we believe that setting up and maintaining a self-employed retirement plan should be as streamlined as possible for self-employed individuals. We aim to make saving for the future more accessible to those who want to run their own business. That’s why we even take care of your tax reporting for you by filing Form 5500 for your Solo(k) on your behalf.
When you set up an account with us, you can also choose your own funds. In other words, it’s easy to diversify your Solo(k) from any existing 401(k)s and reduce your risk overall.
If you’re self-employed and haven’t yet set up a Solo(k), you can get started in just three to five minutes from the comfort of your couch. Reach out today to learn more!