401K-rollovers

[cj610]

I'm looking for some input on what to do w/ a 401K accout I hold. I know as a pilot group, we tend to switch jobs a few times during our careers. I figured w/ that in mind, I might be able to get some good ideas from our group here. The financial adviser whom I have been talking to is suggesting an IRA. That sounds like the best idea so far, but before I go dumping my funds into that, I wanted to hear some suggestions from some experieced job changers. I'm looking to hang on to this money for the long term(retirement), so any suggestions would be great. Thanks

cj610

 

[aero99]

The roth IRA gives you the most bang for your buck. It is tax deffered in that you pay taxes on what you contribue but not on the interest you build. A traditional IRA is the other way around so you pay taxes when you pull it out. Do the math after 30 years and you will see how valuable the Roth is.

There is a way to roll over a traditional IRA to the Roth. There are limitations to the total you can contribute/roll over though, so depending on how much money your talking you might have to do something with excess money else if you hit those limits. Which, is also a good idea to help be more diversified in you investing.

Your money guy can help you with the details of the Roth.

Good luck.

 

[bobbysamd]

Retirement accounts

Whatever you do, absolutely be sure that you roll over your 401-K directly to your new IRA and not have the money touch your hands. Otherwise, it'll create a taxable event and generate an audit notice from the IRS .

Don't forget, you can contribute up to $2K every year to your IRA and it goes off your gross income, lowering your adjusted gross income.

 

[aero99]

And if you do pull money out premature, there is a 10% penilty, plus your taxable income %.

I actually pulled money out of an IRA two years ago, took the hits, and reinvested it and doubled my money on a solid deal. This is very risky so I'm not saying do this, but could be an option with a partial portion.

Also, in these bad times you may need some of the money to survive on. You can pull money from a 401k anytime, just realize you will be taxed at your tax bracket plus 10%.

 

[Mr. Irrelevant]

cj610,


I'm not sure what the situation is that is forcing you to move your 401k account. There really should be nothing forcing you to change accounts based on a change of employers. The 401k plan/program your $$$ are currently in might be the best of what your options are. For example, that program may have more options for you to move your money around with an investment firm/manager that has a strong track record of outperforming their benchmarks. Last on this, there may be some tax penalties imposed on you if you try and use a Roth IRA. Most certainly you will pay taxes on what gets put in there which you may or may not have the stomach for right now. There may also be an IRS penalty for early withdrawl from that 401k. A CPA would know that area better than I.

As far as IRA's are concerned, they're a great option for rolling over a pension but there are a number of rules that pertain to using them. Especially limits on the amount you can invest each year(as aero stated). Don't quote me but I believe it was 2k until next year when it rises to 5k under new tax laws. And really, the IRA you choose if utilizing one, is the one that best suits your needs. A Roth is not necessarily the best for everyone. I have some information on this I'll try and dig up in the next day or two that I could email you directly.

If you're looking for some guidance on how some of us would handle investments for the long haul here's my two cents. Equities, Equities and Equities. Greater returns with more volatility however if you're below 50 years old you have a long time until retirement. I personally prefer indexed S&P 500 funds for some of my retirement $$$. Although nothing is guaranteed, the S&P 500 will over 20 years or more probably net you a return around 11% annualized. This annualized number can vary but 11% is a good approximation (Morningstar I believe did a 70 year regression analysis looking at the S&P from 1926-1994 and came up with close to 12% annualized). Assuming you won't access this $$$ for 30 years and you have 10k right now, that 11% annualized would be $228,922 at the end of 30 years. Factors to consider are inflation, roughly 3%, and fees charged. An index fund charges much lower fees than would an actively managed fund and the difference can be great over a long period of time.

I also like value funds over growth as they've provided a much better return over the last 40 years (almost 4% per year) than growth funds with only slightly greater volatility. That is something I only learned recently. A big surprise.

Most of all, I would diversify. Indexed, Value, Growth, International, a little fixed and maybe some real estate.

I'll try and remember to find some of that info I refered to. And yeah, I'm flying a desk right now for an Investment Manager so I am involved in some of this on a daily basis. Interesting but the view the other buildings has alot to be desired.


Mr. Irrelevant

 

[bin LAAidoff]

One good reason to move/consolidate, and something to watch for is the "account maintenance fee".

I had 5 401(k)'s, figured why bother moving them. Recently discovered that 3 of them charge a $35-55 charge for the privelege of holding my money! (if the balance less than $5000). Guess that is their way of saying #$%#$% you, get lost. Making money on $700 with a $50 service charge is not easy!

No advice what to put your funds in. I've recently consolidated my 401(k)'s to my latest fulougher account. It was either that, or squander it on liquor and girls.

-good luck

 

[Jeff G]

You need to be careful to keep your apples and oranges separate. You can roll your 401(k) into another 401(k), which is what I would suggest. This is not a taxable event. If you can roll it into a traditional IRA, it would accomplish pretty much the same goal. But leave the Roth out of this. A Roth isn't tax-deferred in the same sense that the traditional IRA is. All funds going into a Roth are taxed, so rolling a 401(k) into a Roth may not be a good move. You'd pay all the taxes on your 401(k) when they go in. The same thing happens when you convert a traditional IRA to a Roth IRA. Incidentally, if you're going to convert a traditional IRA to a Roth (which is a great thing to do), do it early. If you make more than $100,000 in taxable income, you can't convert.

BTW, the IRA limit was raised to $3000 a year starting this year. In 2004 it goes up to $4000, and to $5000 in 2006. This applies to a Roth or traditional. The only difference is that with a Roth, you don't get the IRA deduction. But who cares, since you never pay taxes on the proceeds. This makes a huge difference when it comes time to withdraw later.