|
|
| *Ostroff, Fair and Company>>>Investing |
What is the benefit of rolling a 401k into a IRA? |
I have a 401k from a previous employer and I've understood that rolling it over into a IRA is a good idea, but I'm not totally clear why. Is because you face more penalities the longer the account remains open? When I contacted the company managing my account, they said I could leave it open for the life of the account and that rates where competitive, which I'm certain is to their benefit, but I thought it was a question worth asking. Any help would be greatly appreciated. I have a free downloadable book on retirement investing, available in PDF format from my website. Click on my profile and read my info to get the site. Just in case you were interested. Now, to answer your question, let me pick an exerpt from my book: "There is a type of account, called a Rollover IRA, which is considered the "universal recipient" for any before-tax money. (Actually, a Rollover IRA is a type of Traditional IRA. We just give it this fancy name to denote what most people use it for.) The drawback is that you cannot contribute new money to a Rollover IRA. However, you can consolidate all your before-tax accounts (from previous employers) into one Rollover IRA with almost any investment firm. You now have free reign over how you retirement money is invested. You are no longer bound by the limitations of your former employer's plan. And if you become dissatisfied with your Rollover IRA, guess what? You can roll that to another Rollover IRA with another investment firm. Just keep rolling, and you pay no taxes." "I highly recommend rolling your money from past employer accounts into a Rollover IRA or your current employer's plan. Do not let that money sit with your old employer. In order to release that money, you will need approval from human resources. This could be tricky if you left years ago. Human resources at your old job may look at your paper work and say, "who is this?" To avoid hassles down the road, please rollover money soon after you sever employment. Just think, once you get money into a Rollover IRA, you no longer need human resource's permission." "Any money from previous employer plans should be rolled over to your current employer's plan or a Rollover IRA. Personally, I like the Rollover IRA since you can choose whatever firm you want, as well as the option to convert it to a Roth IRA. You will eventually have all your money in an IRA, anyway. Very few people keep their money in their old job's plan while in retirement. Do you already have a Rollover IRA, but with high-cost funds? If so, use a direct rollover to get that money into a firm with low-costs funds like Fidelity, Vanguard, or T. Rowe Price." The beauty of a rollover IRA is that you can pick an IRA with almost any firm you want and can get your money into low-cost funds. Also, you have the option of eventually converting it to a Roth IRA, if you are willing to pay the taxes this year. I don't think you would "face more penalties" based on the length of time you have the account open. If you are referring to tax penalties, realize that you cannot withdraw money before age 60 in either a 401(k) or an IRA without incuring a 10% tax penalty. If you do decide to rollover, please use a Direct Rollover. With direct rollovers, the provider of your old account sends the check directly to the provider of your new account. The check is made out to the trustee for the new provider. With direct rollovers you never see the check and are not subject to the 60-day rule or the mandatory 20% withholding. If something goes wrong with the transfer, the money remains with the old account and you can try again. Yes, it's frustrating if this happens, but at least you don't run the risk of incurring a taxable distribution. Keep in mind that direct rollovers are not always smooth. Mine took 3 months. You may need to moderate the process by making calls to both providers. Some providers hassle you because they don't want to give up your money. Despite any hassles, a direct rollover is far better than taking all your money as a taxable distribution. Hope this helps some. Download my free book if you want more help. Chapter 24 addressed the issues of retirement accounts. If you take the money out of a 401k before you are 59 1/2 there is a 10% penalty unless rolled over into an IRA. There is no reason for not rolling it over into an IRA. Be sure you do a rollover. If you handle the cash there may be a penalty. Leaving it in may be a good idea if the investment is good and you don't want to figure out what to invest it in with an IRA. See what the 401k fees are and what you are earning and compare it to the cost of an IRA and its return. Many companies don't charge a fee as long as there is a minimum balance. I am sorry that I am not answering your question...I am trying sooo hard to get rid of the jerk that keeps on with his crapp! Sorry you had to read something like that. If you roll it to an IRA you will have more investment choices and IF you choose a good financial advisor to help you with it you will also get advice on what investments to choose. Beware, however, that there are a lot of people out there who call themselves "advisors" when they are actually nothing more than salesmen trying to earn a commission on the rollover. There's nothing really wrong with that, just know what you're getting when you start to work with someone. No one does it for free, ask them how they are going to get paid. Lots of experience Your 401 " plan" might offer you about twenty-five or thirty different investment options ( different mutual funds)...but in your personal IRA you would be able to put your money into any investment ...funds from about a hundred different companies...or individual stocks..or investments called ETF's. If you are not familiar with doing your own investing, you can gradually learn a little...and yes it will benefit you greatly ( in 99 out of 100 cases ). I would suggest logging into Fidelity's web site and get a phone number for a representative....they can send you " beginner's investment" info...and do almost all the work for a " rollover". Once you have the IRA account, take it slow ...look at a few funds and distibute your money into some...the money you don't put into funds will remain in your " core account" ( and get interest anyway)...but once you start paying attention to how your money is working in funds you will surely want to move into bigger returns. Some rainy weekend log into a few financial websites...yahoo. msn/moneycentral, fastmoney...and on Monday take the plunge and buy a little of an individual stock or two... all on- line... My daughters were skeptical at first, 'til a couple of times they made 20% in a week, 65% in a couple of months. Nice way to work on a " nest-egg". Good luck. |
| Tags |
| Renting & Real Estate Personal Finance Investing Insurance Credit |
Finance Categories--Copyright/IP Policy--Contact Webmaster |