1
A rollover IRA
Question: My place of employment utilizes a directed pension option which I've taken advantage of since I began working there. I currently have about 300k in the program and am in my mid-forties. But I will be leaving for a new job in a few months. What should I roll this fund over into? Peter, Indianapolis, IN
Answer: My recommendation is for you to take control of the savings with a rollover IRA. When it comes to retirement savings I almost always prefer investing the money in a well-diversified, low-cost, broad-based series of mutual funds. (I like individual stocks for taxable accounts because if your bet goes bad you can always write it off against your taxes.) You'll need to decide whether you want to roll the money over into a traditional IRA or a Roth-IRA.
By the way, if you really like the plan options of your soon-to-be former employer you could stick with it for now. That's assuming it's okay with your employer. Many companies let their former employees keep their money in the 401(k). But it doesn't have to offer the option. Your new employer might let you roll the money into its plan, too.
But I like the option of taking control of the money through a rollover IRA. It's your money. You'll pay close attention to it. You get to choose the financial firm you want to hold your money and the investment options. It's the most financially flexible choice.
There are no tax consequences or penalties imposed on a rollover so long as the money goes directly from your former employer into the rollover IRA account (which is why it's also called a trustee to trustee rollover). However, if you elect to do the Roth option you will pay your ordinary income tax rate on the savings.
I like to keep retirement savings as simple as possible. A handful of low-fee mutual funds that cover the stock market, bond market, cash, and international securities. You might want to look at John Bogle's The Little Book of Common Sense Investing: The Only Way to Guarantee Your Fair Share of Stock Market Returns. I once nominated Bogle for Marketplace Money Prize in Personal Finance (modeled after the Nobel Prize). He really knows investing for the long-haul.
So, does this general advice apply to retirees, also? That is, do you recommend moving 401k, 403b, 457b money to a rollover IRA? I am retired, and did not do that, electing to keep my 403b money where it is (and I have not had to start using any of it yet, either). One reason I have done that is that a fraction of it (about 35%) is in TIAA Traditional and was contributed to that through retirement plans at a couple of employers. TIAA pays about a half percent more for TIAA Traditional in retirement accounts than it does for IRA accounts. There is a catch to that, and that is that eventually one is supposed to annuitize the TIAA Traditional money from retirement accounts, whereas there is no requirement of that for the IRA. But, is there another upside to moving the money into an IRA? It is actually too late for me to do that, as TIAA requires that it be done within some certain time after retirement, but if it would be advantageous for my wife to do so when she retires, despite the half percent interest hit, she might do so.
Thanks, David
