How to Setup a Second 401k

There are a variety of reasons why investors might consider setting up a second 401k. Your research may locate a retirement account similar to a 401k without the same deferral cap, or another 401k account with a better history of returns. It's important that you understand the steps needed in establishing a second 401k to avoid legal liabilities.

Instructions

Difficulty: Moderate

Things You’ll Need:

• Bank account information
• Prospectus for primary 401k

1. Locate a 401k account that is distinct from your primary retirement account. You should review the types of stocks and funds that your current account taps into, and then choose an account that exploits different aspects of the investment market.
2. Learn about the retirement account manager that you will use for your second 401k. You should assess these managers on their level of client success, their growth and their reputation for customer service. If you cannot find a manager comparable to your current retirement account, allocate your funds to other savings options.
3. Assess the matching funds your employee will provide for your second 401k account. This advice focuses largely on employees switching jobs and starting a new 401k while they are finishing with a former employer. You should maintain a similar level of matching funds from one account to another for consistent accounting.
4. Calculate the total contribution limit for both 401k funds before you setup a second account. There are a variety of 401k options, but most of these options are governed by the same federal contribution limits. You should look for alternate retirement accounts that operate under different laws to increase your contribution limit.
5. Decrease your deferral amount in the primary 401k account as you setup a secondary 401k. Federal regulations are strict about total contributions among multiple 401k accounts to avoid simple tax shelters for unsavory taxpayers.
6. Sign off on an automatic deposit of your income into a second 401k during the setup process. You should request a deposit form from your employer if it is sponsored through your company or speak with your bank if the 401k is for self employment.
7. Transfer money to your second 401k account if you are fired from or quit a job with your primary account. This is the most compelling reason to establish a secondary 401k and allows you to maintain unbroken retirement savings despite employment status.

Tips & Warnings

• Store information on both of your 401k accounts with your tax data for the current fiscal year. In order to fill out your taxes properly, you need to fill in total contributions as well as interest earned in 401k accounts. These numbers can help save hundreds of dollars on a before-tax 401k account because it decreases your annual income.