Stupid 401k question

[Porsche-O-Phile]

I've got an offer on the table for a new job with a new company, but they currently do not have a 401k program set up, such as my present company does. I have a pretty good chunk of money in mine and would like to not have to cash it out if possible. Anyone know what options I have? Can I roll it into an IRA and keep the tax deferrment?

If I decide to take this new position (it's pretty enticing) and worse comes to worse and I have to cash it out and get raped on the taxes, I guess I'll take the payoff and open a stock/options/futures trading account with it so it still represents investment money rather than play money, but I'd prefer to keep it in retirement-type funds and tax-deferred if possible.

[legion]

You can roll it into an IRA and keep it tax-deferred. I would recommend not cashing out if at all possible. The penalties and taxes are pretty brutal.

[Jim727]

1) Get a good financial advisor;
2) Make sure you transfer your 401K directly from your current employer to a designated retirement account. I think (but not certain) that it has to be an ordinary IRA account;
3) Do NOT let the check touch your hands. There are very strict requirements for roll-over accounts and if you don't meet them the penalties are unpleasant.

It can be done, but you should have the assistance of someone who really knows the ropes.

[Chocaholic]

Or, you can leave it exactly where it is and change nothing.

[JeremyD]

I had several 401k's and rolled them all into Fidelity Investments - they made it very easy and I can change the allocations over the internet.

[Flatbutt1]

all the advice is correct based on my experience. when I left J&J I rolled that 401K into a NML annuity. A friend left theirs at J&J but IIRC he had to roll it over after a few years. Get a pro's advice for sure, these rules have a habit of changing and yes the penalties are severe...ordinary income tax plus penalties can cost you your azz.

[MRM]

If it's a good fund and doesn't have high fees, just leave it where it is. There's no need to take the money out of the 401(k) just because you left the job. My wife and I both have a couple.

[Porsche-O-Phile]

Thanks for the advice - my current employer has the account set up with Fidelity, but my understanding was that if you ever left the employment of a particular "host" company with regards to a 401k, you lost the 401k - you either had to cash it out or roll it over. Since the new place doesn't have a 401k program (new/small company), I guess I just want to see what, if any other options are other than getting smoked on the early withdrawal penalties. I did have to cash out a 401k once and got slaughtered on taxes - the total value of the fund was only about $1,200, but I think I only saw about $600 by the time the government thieves got done with it. Don't want that happening again. Hell, if anyone knows how to move it to an offshore account tax-free, I'm all ears. . . Tax exempt is better than even tax deferred is!

[HardDrive]

Originally posted by Jim727
1) Get a good financial advisor;

It can be done, but you should have the assistance of someone who really knows the ropes.

NO. WTF does he need a financial advisor for? To screw him out of 1-2% of his portfolio every year in ' management fees'.

Unless you are utterly clueless, and wish to remain that way, and like the idea of seeing your growth stifled by ridiculous fees every year, what is the point of a financial advisor?

I have strong feelings about this because I used to be one of these low creatures. What a total racket.

Do it yourself, and if you need help, shoot me a PM.

http://www.schwab.com/public/schwab/planning/changing_jobs/index.html?src=mzj

https://retirementplans.vanguard.com/VGApp/pe/PubHome?FW_Event=PubFormsEvt

http://personal.fidelity.com/products/retirement/rollover/rolloverintro.shtml.cvsr?banner=12493872&immid=00045&site=overture&crtype=search&kw=fidelity_rollover

[Jim727]

Originally posted by HardDrive
NO. WTF does he need a financial advisor for? To screw him out of 1-2% of his portfolio every year in ' management fees'.

Unless you are utterly clueless, and wish to remain that way, and like the idea of seeing your growth stifled by ridiculous fees every year, what is the point of a financial advisor?

I have strong feelings about this because I used to be one of these low creatures. What a total racket.

Do it yourself, and if you need help, shoot me a PM.

http://www.schwab.com/public/schwab/planning/changing_jobs/index.html?src=mzj

https://retirementplans.vanguard.com/VGApp/pe/PubHome?FW_Event=PubFormsEvt

http://personal.fidelity.com/products/retirement/rollover/rolloverintro.shtml.cvsr?banner=12493872&immid=00045&site=overture&crtype=search&kw=fidelity_rollover

Lighten up - nastiness is not a plus.

So - if I understand this correctly, you're offering to be a "good financial advisor"??

[HardDrive]

I apologize. Your right. Not called for.

I get really worked up about this, because I encounter perfectly intelligent folks all the time, who make the bizarre assumption that they are not competent to handle their own money. I don't get it.

My wife is a doctor, and she and here colleagues are the worst offenders. They just assume that this is one of the those things 'best left to the pros', because their career is certainly highly trained specialty.

Is picking mutual fund REALLY that complicated?

No Jim, I am not some financial guru, and I would never claim to have a leg up on anyone in that department. But my decisions have always turned out to be sound.....well, there is that Porsche fetish that is not exactly turning a profit for me......

Sorry for being so quick on the trigger.

[HardDrive]

Some nice free documentation form Vanguard:

https://flagship.vanguard.com/VGApp/hnw/LiteratureRequest?FW_Activity=FindLiteratureActivi ty&FW_Event=subcategory&cat_cd=LERN&sub_cat_cd=PLTK&active_menu_item=CBD_PLAINTALK_INVESTMENT_GUIDES&entryPoint=PLN

[Aurel]

Originally posted by Chocaholic
Or, you can leave it exactly where it is and change nothing.

This is exactly what I did with mine. If the investments have a good yield, just let it grow. Mine grew about 25% since the 3 years I have left my previous company. Just keep an eye on it.

Aurel

[VincentVega]

You cant contribute any longer, once you leave the current employer, but the 401k can stay in their plan. It's not bad advice to leave it as it is until you get settled and learn more about your options. A simple call/web lookup to the fund house of your choice, Vanguard, T Rowe Price... will give you all the info you need to make a simple 401k-IRA conversion.

Once you figure out what you want to invest in look for low fees. Simple.

[tsinger873]

Most if not all 401k plans will let you keep the funds in the plan after leaving. There are guidelines for the company to force you out if their plan is written properly. If your account has more than $5k in it you should be able to keep it in there.

Secure Your Retirement with a Rollover IRA
By Sam Subramanian, PhD, MBA is Managing Principal of AlphaProfit Investments, LLC and edits the AlphaProfit Sector Investors' Newsletter™. To learn more about AlphaProfit or to contact the author, visit www.alphaprofit.com.


Switching your job? Retiring? Congratulations! A window of opportunity opens for you with the Rollover Individual Retirement Account or Rollover IRA.

In an era of corporate restructuring and outsourcing, Rollover IRA is among the most powerful means available for securing one's retirement. Yet, its potential to enlarge one's assets for the golden years commonly remains under-appreciated.

The Rollover IRA dramatically increases the range of choices available to you for investing your retirement savings. By offering investment choices hitherto unavailable in employer-sponsored plans such as 401k, 403b, or Section 457 plans, Rollover IRA provides you the means to have direct control of and more aggressively grow your nest egg.

This article discusses the advantages of Rollover IRA over employer-sponsored retirement plans.

So, if you are leaving your job and have accumulated assets in the employer-sponsored retirement plan, continue reading this article to learn about your options and more.

Four Options

You have four options on what you can do with your savings in your employer-sponsored plan when you are switching jobs or retiring.

1. Cash your savings.
2. Continue with the retirement plan of your previous employer.
3. Switch to the retirement plan sponsored by your new employer.
4. Set up a Rollover IRA account with a mutual fund company and move your retirement savings into that account.

Unless you have a pressing need, it is best not to cash your retirement savings. First, cash withdrawals from the retirement plan will be subject to federal and state taxes. Second, your retirement savings diminish and you will have fewer assets to grow tax-deferred.

While the three other options will not erode your retirement savings and will allow it to grow tax-deferred, they are not equal in their ability to help you boost its growth rate.

Increased Investment Choices

Most employees earn meager returns on their employer-sponsored retirement plan savings. A Dalbar study reports that the average 401k plan investor achieved an annual return of just 3.5% during a 20-year period when the S&P 500 returned 13.0% per year.

Part of the problem stems from the fact that most retirement plans offer only a limited number of investment choices. A Columbia University study finds the median number of mutual fund choices in 401k plans to be just 13. The actual number of equity mutual fund investment choices however is less, since the median number includes money market funds, fixed income funds, and balanced funds.

With fewer investment choices, employer-sponsored plans limit your ability to take advantage of different market trends and to continually position your retirement savings in mutual funds with superior risk-reward profiles.

If you set up a Rollover IRA with a large mutual fund company such as Fidelity Investments, T. Rowe Price or Vanguard Group, you will break the shackles imposed by your employer-sponsored plan and dramatically increase the number of mutual funds available for investing your retirement savings. Fidelity, for example, provides access to several thousand mutual funds besides the more than 180 mutual funds it manages.

Setting Up the Rollover IRA

Let's say you decide to move your retirement savings to a Rollover account with a mutual fund company. How do you make it happen?

Contact the mutual fund company in which you wish to open an account and ask them to send you their Rollover IRA kit. Complete the form for opening the Rollover IRA account and mail it to the mutual fund company. Next, complete any forms required by the retirement plan administrator of your previous employer and request transfer of your assets into the Rollover IRA account.

You have two choices for moving your retirement savings to your Rollover IRA account. One is to elect to have the money transferred directly from the employer-sponsored plan to the Rollover IRA account. This is called direct rollover. With the indirect rollover alternative, you take the distribution from the retirement plan and then deposit it in the Rollover IRA account. Unless exceptions apply, you have 60 days to deposit the distribution and qualify for tax-free rollover.

You should know that with the latter option, your former employer may be required to withhold and remit to the IRS 20% of the distribution amount. You will get the withholding returned when you file your annual 1040, but in the mean time you are going to have to make-up the difference.

Boosting Your Rollover IRA Performance

You need a well thought-out strategy to benefit from the wide range of investment choices available in the Rollover IRA. You can develop the strategy yourself or derive ideas from investment newsletters.

The investment strategy will enable you to maximize return and minimize risk by leveraging the potential of different investment vehicles within each asset class. For example, you can include sector funds among equity investments and international bond funds among fixed-income investments.

Adding to Your Rollover IRA

You can leverage the potential of your Rollover IRA further by adding to it each time you change jobs. With the Rollover IRA already set up, all you have to do is to instruct the retirement plan administrator of your last employer to transfer assets to the Rollover IRA. There is no limit on the amount of money you can transfer.

You may also add money to your Rollover IRA through regular annual contributions. They are however subject to the annual limit for IRA contributions.

Summary

When you are switching jobs or retiring, the Rollover IRA opens a window of opportunity for you, widening the range of investment choices for your retirement assets hitherto not available in the employer-sponsored plan. The self-directed Rollover IRA empowers you to construct and manage a mutual fund portfolio to boost the growth rate of your retirement savings.

###

401khelpcenter.com is not affiliated with the author of this article nor responsible for its content. The opinions expressed here are those of the author and do not necessarily reflect the positions of 401khelpcenter.com. The information in this article is provided for informational purposes only and is NOT intended as legal, tax or investment advice.

[Nathans_Dad]

P-o-P I have had several 401ks that I have rolled into one. As far as I know, you can still keep that 401k with Fidelity. There should be no reason to close it just because you are moving jobs. In fact, that was the prime reason brokers started offering rollovers, people had 5-10 individual 401ks lying around.

If you decide to move it for some reason, absolutely roll it over through your broker or investment house. As said above, if you let that check touch your hands you pay a penalty. I would not suggest cashing it out as you will likely lose a significant percentage to fees and taxes.

I do all my own investing and manage my own accounts if you want to shoot me a PM I will be happy to help in any way I can.

[Jim727]

Originally posted by HardDrive
I apologize. Your right. Not called for.

I get really worked up about this, because I encounter perfectly intelligent folks all the time, who make the bizarre assumption that they are not competent to handle their own money. I don't get it.

My wife is a doctor, and she and here colleagues are the worst offenders. They just assume that this is one of the those things 'best left to the pros', because their career is certainly highly trained specialty.

Is picking mutual fund REALLY that complicated?

No Jim, I am not some financial guru, and I would never claim to have a leg up on anyone in that department. But my decisions have always turned out to be sound.....well, there is that Porsche fetish that is not exactly turning a profit for me......

Sorry for being so quick on the trigger.

Standup reply, HD - thanks.

Fwiw, we retained someone to help us with our finances and investing. Did it because I *don't* know as much as they do, and I'm better off working with them than trying to be them. They have provided us with information that we may never have found and which has been very valuable. Their fees are well below 2% -- I pay my wrench more each year than I pay them; a pretty good value. What really counts is the bottom line, and my time is more valuable writing software than researching the markets. I would have to say I'm better off after fees than I would have been had I done the investing myself and I don't have to spend what free time I have wading through financial docs.

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