Consolidating 401 k accounts

The first option is a bad idea because Uncle Sam will cream you with taxes and a possible early-withdrawal penalty if you're under 59 1/2.

Why not move the money to your individual retirement account?

"It's a significant problem," says Kile Lewis, co-CEO and founder of o XYgen Financial, a full-service family office in Alpharetta, Ga.

for clients in their 20s and 30s -- or the so-called Generations X and Y.

"They see this as a source of money if they cash the 401(k) out." How to Play Your Options The best strategy for consolidating these old 401(k)s will not necessarily be the same for everyone, according to Sarah Walsh, vice president of retirement solutions at Fidelity Investments.

Although the most common piece of advice one may hear from friends and family is to rollover your old 401(k) accounts into an IRA, this might not always be the right option.

Since I recommend re-balancing once a year, everything was in one place and I could make one phone call to do what I needed. You decide how much you want in stocks, bonds and alternatives -- based on your age and risk tolerance -- and keep to that formula every year.

"One of the biggest issues for this demographic is they have four or five small accounts, and so it doesn't seem like a lot of money to them." In fact, Lewis says that he recently met with a young married couple who each had multiple old 401(k)s, with roughly ,000, ,000, ,000 and ,000 in them respectively.

Rather than figuring out a way to consolidate those accounts, the couple instead decided to cash them out.

Of course, every year your stock and bond holdings will go up and down based on annual performance, so you'll have to make adjustments.

After 2008, we decided to keep roughly half of our portfolio in stocks and the remainder in bonds.

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