Log in

View Full Version : Rollover IRA and its benefits


allinone
Jul 21, 2010, 08:58 AM
Is this a really good idea to rollover a 401K to rollover IRA?
How does it work? I have a Roth IRA account. Do I have to open other IRA account for this? Is there a limit to transfer from 401 to IRA?
When you rollover do you sell all the funds in the 401K and transfer only monetary equivalent? When is the better time to do it when the market up or down?

I'll accept any other suggestions.

Thank you.

ebaines
Jul 21, 2010, 09:40 AM
In general rolling an old 401(k) to an IRA after you've left the company can be a good idea for several reasons:

1. More options of how to invest
2. You can find low cost IRA investment options at places like Fidelity, Schwab, Vanguard etc that are likely to be more efficient (lower cost) than your company's 401(k).
3. You can consolidate to the same institution where your other savings and/or IRA accounts are located, so less paperwork
4. Less likely to lose track of it or to forget to update your current mailing address (we answer questions here all the time from people who have moved and forgotten where their old 401(k) plans are).
5. IRAs have a couple of more exceptions for distributions made before you reach 59-1/2 that do not trigger the 10% early withdrawal penalty - specifically for first time home buyers and higher education expenses for yourself, spouse, or child.

The way to make a rollover is to work directly with the instiutution where you will be setting up the new IRA account - you do not need to contact your old employer, or the 401(k) plan administrator yourself. It will be a separate IRA account from your existing Roth, and will be set up specifically as a rollover IRA. Keep in mind that this is not a Roth, as all contributions have been pre-tax (hence when you make withdrawals down the road they will be taxable, just as from the 401(k)). You will roll the entire amount from the 401(k) into this new IRA. You will have to specify how you want the money invested in the new account. Your existing investments in the 401(k) are sold off and the cash transferred over to the new account, and then new investments are bought in the new account.

This is all very easy - virtually all financial institutions that offer IRAs have the necessary forms on line. About all you have to do is pick your new investment, send in the form, and attach a copy of your latest 401(k) statement. The IRA custodian handles all the rest of the paperwork. I personally have done this twice, and it's a breeze.

Don't try to market time this, unless you have a significant amount of an investment that can't be duplicated in the new IRA - company stock, for example. If your company stock value in the 401(k) is depressed, and you are confident that it will go up significantly in the next year or two, you may want to wait. But for investmets in mutual funds it really makes no sense to wait, since whatever funds you sell in the 401(k) can be immedately duplicated in the IRA.