Are multiple 401(k) plans from former employers just sitting on your shelf, collecting dust? If so, we highly recommend that you roll them over into an IRA. You’ll find that the advantages are many, while the disadvantages are few:
Pros:
- IT’S SO MUCH EASIER: By consolidating multiple 401(k) accounts into a single IRA, you eliminate the hassle of having to coordinate separate accounts with different investment options, administrative rules, passwords, etc.
- YOU’LL DO BETTER: 401(k) accounts generally have very limited investment options. Many times they have high fees and do not offer sufficient breadth to allow for diversification. In an IRA, you can just about invest in anything including mutual funds, stocks, and ETFs.
- SAVE ON TAXES: With a direct rollover, there are no tax implications. And your assets’ tax-deferred status remains unchanged. You’ll pay income tax when you withdraw the funds.
Cons:
- While you can take a loan against some Employer sponsored 401(k)’s, you can’t take one out on an IRA. But hey, in most cases you shouldn’t do that anyway.
Four Simple Steps:
- Call Your Favorite Brokerage Firm. To make life easier, pick one that already holds your other accounts.
- Ask to Speak with an IRA Rollover Specialist who can help you with every step, from opening your new IRA rollover account to calling your current 401(k) custodian to initiate the process. He or she will also guide you through the paperwork. Both Schwab and Fidelity have very helpful specialists. How do they make money? Brokerage firms earn commissions when you trade and, if you let them, fees for managing your money.
- Chose a Direct Rollover. The specialist will ask whether you’ve reviewed the IRS disclosure rules. (The government requires every brokerage to do this). After you say yes, the specialist will initiate the direct rollover and send you a check (made out to your brokerage of choice with you as the beneficiary), which should arrive within 10 business days. Take the check and send it in to your brokerage.
- Invest It Wisely. Once your account has been funded, use an appropriate strategy to invest it. Choose the right asset allocation.
Tip of the Day:
If you rollover your 401(k) to Charles Schwab right now, you can create a diversified asset allocation using the firm’s six new ETF’s. These ETFs have very low fees and Schwab currently does not charge commissions on them. So your rollover will be totally FREE.
Do it today! We just helped one of our clients through this process – it took only a half hour. It will relieve anxiety and stress. Really!
