This article is for educational purposes only and should not be viewed as specific tax, investment, or legal advice.

Did you work in the US before making Aliyah? The goal of this guide is to provide you with a game plan for evaluating and optimizing your US retirement accounts.

After Aliyah, it is easy to just forget about all of this. After all, don’t you have enough to deal with just trying to figure out Israel’s pension system and what the heck a Keren Hishtalmut is? The truth is that ignoring these accounts is often a big mistake. A few tweaks could lead to so much more at retirement, so why leave that on the table?

If you have a 401(k), 403(b), or 457 set up for you by your former employer, use these steps to turn them into real money.

Step 1: Check your account and key documents

To get started, get your documents together. Use your online access to check your current account value and download the latest quarterly statement. If you have a copy of your SPD (Summary Plan Description) and/or your annual report (Form 5500), these will also come in handy.

Step 2: Assess the quality of your account

At this stage, you are looking to identify information about two key areas of long-term success (or failure) – fees & investment choices.

Administrative Fees

One of the biggest problems common to 401ks and other employee sponsored retirement plans is high fees. Estimating the amount of fees you are paying is a key component of assessing the quality of your plan.

If you have your recent Form 5500, it should list administrative fees taken as a dollar amount. You can then divide that dollar amount by the total balance of your account to arrive at the approximate administrative fee percentage. Alternatively, you can look at a recent quarterly statement and look at what fees were deducted. Multiply that number by 4 and then divide by the total assets in your account.

Next, to really be able to estimate the total amount of fees your are incurring, you will also need to estimate the underlying fees of the individual investments you are holding. In some cases the investment fees, know as “expense ratio”, will be listed on your quarterly statement. If not, you can search for your fund(s) on morningstar to see the fund’s expense ratio and how it compares to other funds that are invested similarly. Here is one example:

Keep in mind that you can easily get your fees down to almost 0! By opening an IRA (discussed in steps 3-5) and investing in low-cost index funds you would completely eliminate administrative fees and slash your investment fees. To illustrate this, here is an example of the difference fees can make for someone with a 50K balance today that earns an average annual return of 8% over 30 years.

The higher your balance the bigger the impact. Don’t get too bogged down on this step, the key is just to be able to estimate your fees and see if you have high-fee plan. If you are paying more than 0.5% in total fees, you should strongly consider rolling over your 401k to an IRA, as we will discuss shortly.

Investment choices

Once you have assessed the overall fees of the plan, you can now evaluate your investment choices. You will be able to see exactly how your funds are invested by logging in online or looking at a recent account statement. If your funds are currently invested in high-fee active mutual funds or complex annuity contracts it may be time to consider a change. Two options for moving forward include:

1. Switch to a different investment offered by your plan. You should be able to find the investments offered in your SPD and/or at the bottom of your quarterly statement. If they offer low-cost target-date funds or broadly diversified index-funds, these are good options to consider.
2. If your plan doesn’t offer quality investment choices, this is another very good reason to consider transferring the assets to an IRA.

Step 3: Decide on a rollover strategy

If you went through steps 1 & 2 and decided to keep your money within the employee sponsored system (401K, 403b, 457, etc), skip to step 6.

If high fees and/or poor investment choices has got you down on your 401K, now is the time to make it better. As has been emphasized in this article, tt is important to realize that there is another option. Anyone can open an individual retirement account (IRA) and transfer all your assets from your 401k to your IRA.

An IRA can generally be opened and maintained without any fees. As mentioned above, buying a passive globally diversified investment portfolio within your IRA can be done with extremely low fees and very little effort. It is your right to roll over your 401k to an IRA at any time and can generally be done tax free. By rolling over your funds from a 401K to an IRA (rather than withdrawing them from a 401K), you ensure that your money stays within the “retirement wrapper” and is able to maintain important tax advantages.

Once you have decided on which account or accounts you will be rolling over to IRA, proceed to the next step

Step 4: Open an IRA

If you already have an IRA open, you can usually skip this step. There is no problem rolling over a 401k, 403b, or 457 to an existing IRA. This can help keep things simple by consolidating in to one account.

If you don’t have an IRA open, you will need to open one at a US brokerage. Interactive Brokers and Schwab are both popular options for Americans in Israel. If you maintain a US address and prefer automated investing, M1 Finance is another good platform to consider.

You should open up an IRA that is the same “type” as the 401K (or other account) that you will be rolling over. If you have Traditional 401K (most common), you will probably want to open up a traditional IRA. Rolling over a traditional 401k to a Roth IRA will involve significant taxes and should only be done after you have discussed it with an accountant familiar with the tax considerations in the both the US and Israel. If you have a Roth 401K, you will need to open up a Roth IRA.

Step 5: Implement

Once you have an IRA open, you are ready to implement your rollover plan. The key here is to keep things moving forward.

Start by Googling 401K rollover instructions for you specific plan provider. You will probably find a form that you need to fill out to initiate the transfer. If not, you many need to contact your plan provider in order to have the rollover initiated. The plan provider will then transfer the account balance to your IRA. This process usually takes 2 weeks or less.

Important: you should never select to have the plan provider write a check to you personally, especially if you live in Israel. If you receive this check and are unable to deposit it into your IRA, this can be considered a withdrawal and result in significant tax penalties. The plan provider should transfer the funds directly to your IRA provider.

Step 6: Choose your investment mix

The last step towards optimizing your retirement account is choosing what to invest in within your account. The general rule here is stocks have a higher expected returns than bonds. For those with a long time until retirement, having a higher allocation to stocks is usually preferred.

If you skipped steps 3-5 and chose to keep your funds within the 401k, your investment choices will be more limited. But don’t don’t just settle for whatever investment your were defaulted into. Spending a little time on picking the best option for you can make a massive difference in the long run.

If you rolled over your funds into an IRA, now you have to choose how to invest them. This is not something that needs to take a lot time or that requires you to watch the ups and downs of the stock market. For most people with decades until retirement, putting your money in 1-2 low-cost, globally diversified index funds is a great way to go.

The key here is to make sure that these accounts aren’t forgotten. A few important tweaks can pay off massively in the long run. Happy investing!