Your retirement rollover decision could save you thousands

October 14, 2011

 


In the two decades that I’ve been covering personal finance, I’ve worked for three big companies. I like to practice what I preach, like in the video above, where I explain some simple ways that you can manage your 401(k) when you change jobs and potentially save yourself more than $60,000 in about 30 minutes.

The backstory that you don’t catch above is this:

I’ve participated in the 401(k) at each employer I’ve worked at over the years, contributing the most money I could afford and always meeting the threshold to get the prized company match.

But on my way out the door, I’ve always taken my money with me, rolling over my hard-earned retirement funds into another qualified investment opportunity.

Workers have some choices when they leave a job. They typically can leave assets with the former employer, move it to an IRA or roll it into a 401(k) plan at their new job. (They also could cash it out – something I don’t recommend because of the tax penalties and it’s supposed to be there for retirement.)

When I left my last job, I rolled my retirement funds into the Thomson Reuters 401(k). There are a few reasons why: For one thing, I like the control you get when you move your money around. A previous employer offered weak investment choices, most of which were actively managed funds that lagged their peers.

In addition, when you consolidate your 401(k) savings, it’s a lot easier to keep track of your money. Don’t forget, the typical American will have 11 jobs in his or her lifetime. The idea of having 11 different retirement accounts terrifies me.

It’s not hard to roll your 401(k) savings into a new account, but that doesn’t mean workers do it as often as they should. According to a recent Harris Interactive survey commissioned by ING DIRECT, nearly 30 percent of people who left a retirement account behind at a previous employer claim:

* They plan to roll it over but haven’t found the time

* Haven’t decided where to roll it over

* Aren’t sure how to roll it over

* Or have simply forgotten about their old 401(k).

Rollovers give you a lot more flexibility, too. For example, if you move your savings into a 401(k) plan, you can take a loan – assuming you meet the requirements. Now, I’m not saying you should tap your retirement account like an ATM. In fact, I recommend that you don’t. But, given the shaky economy, it’s nice to know the money is available, if you need it.

There are plenty of motives to sock extra money away into a 401(k), but the real reason I decided to add my retirement savings to my employer’s plan is that the investment options are stellar. Our plan gets high marks from Brightscope, which ranks company 401(k) plans. It has rock-bottom fees (I’m a cheapskate) and excellent investment options.

Because I cover personal finance, people always assume I’m an active investor. In truth, I’ve staked the bulk of my retirement savings on one fund, the BlackRock LifePath 2030 fund. This all-in-one portfolio uses a mix of index funds focusing on U.S. stocks, emerging markets stocks, REITs and other market sectors. It is designed to reduce exposure to stocks while increasing cash and bond holdings as you approach retirement age. For all of that expertise, I pay a mere 0.35 percent of assets annually, which is about a percentage point cheaper than if I went to a big brokerage house and bought the fund through an adviser.

Thankfully, there isn’t much paperwork involved in a rollover. And in my case, it took less than two weeks for the rollover money to show up in my 401(k).

 

 

2 comments

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401K rollovers can also be a way for someone to lose both their shirt and retirement fund.

Posted by Greenspan2 | Report as abusive

When I got booted for being 55 years of age and too old 10.5 years ago, I took a look at my 401K. Like you, I had diversified and had the benefit of the max company match on my endeavors. I then learned of the 72T option. It allowed me to take my complete 401K from the company to an IRA at a brokerage, the money never touching my hands. I then continued to make $60 to $80K in the market for three years. Now at 65 I find myself with 80% of my transferred wealth, no debt, no mortgage and a lot of dividend/interest paying pieces in my IRA averaging 6.5 to 9.0% yearly. My withdrawels are matched by my dividend paying investments making my IRA perpetual as long as they aren’t recalled.

Posted by Wassup | Report as abusive