When you leave your job for whatever reason, you have four
choices. You can leave the money in your former employer's plan, roll it into
the plan at your new job, roll it over into an IRA at a mutual fund company or
financial adviser, or simply withdraw the cash. Taking the cash is a huge
mistake, because you'll pay a 10 percent penalty if you're under age 59 1/2,
along with ordinary income taxes -- and you'll lose all the future tax-deferred
growth on your money. The other three choices depend on some variables. Here's
what to consider:
Typically a 401(k) plan is composed of mutual funds that are designed to grow
employee's retirement assets over the long run. But once you're retired, you
might want a broader choice of investments, including more conservative choices
than are in your company plan. Contact a mutual fund company such as Fidelity,
Vanguard or T. Rowe Price and ask to speak to an adviser about a potential
rollover of your IRA. They will outline their suggested funds for your
Some large company plans may be able to negotiate very low fees for their
retirement plans. That may be one reason to stick with the company plan. To
compare alternatives, ask the company plan sponsor about the "overall
fees" your account pays each year. Then, when talking to a financial
planner or mutual fund company about a rollover, be sure to ask about their
fund fees, as well as any "annual IRA account maintenance fee" that
would be charged to your account. Every little bit adds up -- or subtracts from
your retirement assets.
Many company plans are set up to offer broad advice to employees about
diversification of assets. Usually this is done through a fiduciary such as
Financial Engines or Morningstar. However, once you are retired you may not
have access to this advice. Or the advisers may specialize in the accumulation
phase instead of the distribution phase.
paperwork. As you reach age 70 1/2, when you'll face required minimum
distributions from your retirement assets, a corporate 401(k) may not be nearly
as helpful as a mutual fund company, which has the processes in place to
automatically calculate -- and remind you about -- RMDs. A reminder: You don't
have to keep all your investments at one custodian. And you can withdraw from
one, or multiple, accounts as long as you withdraw the correct amount.
investments. Before you decide to roll your company retirement plan into an
IRA, be aware that you may not be able to easily replace some investments
specific to your plan. The company plan sponsor may offer higher yielding GICs
(guaranteed investment contracts from an insurance company). Those aren't
available outside your plan. And you may want to make special arrangements if
you have long-held company stock as part of your retirement assets. Consult
your tax adviser.
Whatever you decide, make time to think about and research
your decision. Do not take a check from your company plan while you're doing
this homework. Instead, wait until you make a decision, and then do a direct
rollover to a new plan or IRA. The new custodian will handle all the paperwork,
freeing you from potential tax liability. Your 401(k) plan is worth a lot now,
and if you make the right decisions it could be worth a lot more in the future.
So it's worth taking the time to deal with it correctly. And that's The Savage
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