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XMFDataPrincess (47.84)

The Road to Investing: Hey Old Boss, I Want My Money Back!!!

Recs

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September 08, 2010 – Comments (4) | RELATED TICKERS: AMZN , NFLX

A few blog posts back I asked for your opinion as to whether a parent saving for retirement and college could be serious about becoming an investor. (Mother: May I Invest Now?) This Community of Fools has taken time to help me navigate through various sites at the Fool and beyond, and I've learned about some great resources for the novice investor. At the risk of appearing stuck, however, I plan to spend time getting my personal finances in order before choosing that first stock. Besides, my CAPS picks are kind of pathetic except for some lucky hits, like Amazon and Netflix.

Packing the proverbial cardboard box at my last company, I took down the photos of the kids, popped the batteries out of the motion-sensitive singing hamster, wrapped up my Abby Normal soap-in-a-jar, and tossed out some of the more well-chewed pens. Careful not to take anything that was company property, I left behind the stapler, the 3-hole-punch, the pager, my 401k, some outdated tech manuals … my 401k???

When I chose my target date fund I intended to set-it-and-forget it, but not abandon it. My Netflix queue gets more respect. In fact I have two such accounts which have remained with previous employers over the course of fifteen years as I have never seen the point of moving them. I can still log into my accounts, and all the old money seems to be there … just not much new money.

Some years ago my oldest employer sent me a package after my departure, suggesting I take action on my 401k and even offering to provide some free advice. That made its way to the recycle bin about as fast as all of the other 'investor action' memos I received from them. But last week here at the Fool I approached a wise investor-type person who shared her opinion of this situation with me (as well as giving me a great new easy-to-follow title for my blog) and said that it's time for me to get some advice about an IRA rollover, especially since I'm probably paying fees on those 401k accounts. It’s possible that my old employers might even be making some money off of them, in which case it’s probably okay that I walked off with the electric pencil sharpener.

I'm going to try to check out some personal finance web sites, locate a good financial advisor fool, and keep you posted on my progress. Your comments are most welcome, and needed!

4 Comments – Post Your Own

#1) On September 08, 2010 at 4:04 PM, Melaschasm (88.99) wrote:

I like to roll my 401k plans into a traditional IRA so that I do not have any tax impact.  For me the big advantage of moving to an IRA is the ability to manage my money.  I usually do not like the mutual fund options in 401k plans, and a self directed IRA provides the flexibility I prefer.

Target date funds have some nice features, but I recommend shifting to an asset allocation method which does much the same thing.  I have been meaning to write an asset allocation blog, and once I do, I will post a copy here.

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#2) On September 08, 2010 at 8:18 PM, rd80 (99.11) wrote:

Here's how I attacked a rollover a few years ago.

Before you start looking for brokers or mutual fund managers, sort out what you've got.  Make a list of the old 401k's along with any traditional IRAs you may have and what's in them.

Now, lay out your options.  If you like the investment choices in you old 401k and the plan doesn't require you to roll out of it, keep it.  You can probably roll the money into your current employer's 401k plan if they have one - I would hope TMF has a plan with good options.  You can roll it into a single mutual fund IRA account if you only want one fund.  For the most invesment options, roll it in to a brokerage IRA account.  Keep in mind the 401k does offer some features, like the ability to take a loan, that you lose with an IRA.  In some cases, a 401k plan may have investment options not available outside the plan like a fund that's closed to new investors or seperately managed accounts.

Next, where do you want to invest the money?  This will be somewhat dependent on the amount.  If the total is relatively small, it probably makes the most sense to pick one or two diversified mutual funds or a broad market ETF.  If you've got a sizeable stash, individual stocks or branching out into a few specialized funds starts to make sense.

Part of that second step should include a realistic assessment of your interest in stocks and the willingness to devote time to maintaining a portfolio.  If you're interested and enjoy spending time on finances, individual stocks are great.  If not, mutual funds or ETFs are the way to go.  And, there's no reason you can't mix funds and stocks.  For example, I don't have the expertise or interest to dig into emerging markets or bonds, so I use funds there.

If that last step includes mutual funds (and it probably will), you need to do some research on which funds you would like to own.  This is critical before searching for brokers since not all brokers handle all the funds and the fee structures vary.

Now you're ready to start shopping for a broker.  With an idea of what you want, you can figure out the cost structure for each broker.  Do they have the funds you want?  Are they part of the no-transaction-fee offerings?  If you want to invest with options, find out what restrictions the brokerage puts on IRA accounts.  Some brokers now let you buy ETFs with no commission.  Commission structures vary between brokers depending on account size, number of trades, phase of the moon and what Tim Geithner had for dinner last night.   You can start with TMF's 'Find a Broker' page, but there are lots of choices out there - Fidelity, TradeStation, Interactive Brokers, Think or Swim...  Most of the financial magazines will run a broker comparison article at some point during the year and there are always lots of ads.  You might even have one or two coworkers who can recommend a firm.  The key is look at all the fees and features and see who gets you what you need/want for the lowest cost.  If your investment needs change a few years down the road, it's easy to move your account, although there will probably be a fee.

Your ready to move.  If you're going with an IRA brokerage account, you'll probably need to open the account before moving the money.  If there are funds you want to keep, you may be able to transfer the shares directly to your new account.  In my case, Fidelity would only do a direct transfer had I opened a Fidelity brokerage account.  They sent me a check, I think made out to my new brokerage for my benefit or something like that.  Be careful here - if I remember correctly, don't have the check made out to you, it can be considered a distribution with tax consequences, withholdings and a general pita.

Assuming you roll the 401k(s) into a brokerage IRA, the whole world of stocks, ETFs, mutual funds, CDs, bonds and even options can be your oyster all in one account with one statement.

One last note, if any of the accounts are Roths, you can't mix Roth or traditional funds in the same account.  You can have both a Roth and a traditional account at the same brokerage.

 

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#3) On September 09, 2010 at 7:40 AM, vriguy (80.61) wrote:

I rec'd this for rd80's great response. One other thing to consider. Over the years I've rolled over multiple 401k and 403b into my IRA.  Now I have the problem that I have to take all those into account as pre-tax contributions if I want to do a Roth conversion.  All my traditional IRA contributions were after tax as I've always had an employer or self employed plan, so had I not rolled over all those 401k and 403b accounts, my Roth conversion would not involve a big tax hit. Since those now account for 80% of my IRA assets, I've decided the Roth conversion does not make sense for me at 2011/12 projected tax rates.

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#4) On September 17, 2010 at 11:07 AM, rd80 (99.11) wrote:

This Fool article was inspired by your blog entry.

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