Saturday, June 28, 2008

How to rollover (or move) your IRA

The ease of rolling over your money from a 401(k), 403(b) or other pretax retirement benefit from an previous job depends on the company holding your money. Let me use my experience as an example.

My first job after graduate school was working in a laboratory at the same university from which I graduated. This new job doubled my income from my graduate stipend and offered me the opportunity to invest in retirement funds via a 403(b), which is a pretax retirement plan for nonprofits or universities. I started investing in 1999 and then 2000-2001 came along, blithely wiping out the value of my account. When I left the university position in late 2001, the retirement account value was ~50% of my contributions.

The company I am with now hired me seven months after I left my university position. While I was fairly pleased with the 401(k) plan my new employer offered, in January 2007, I consulted with a financial advisor about my 403(b) from the university job. I had let the money (and the plan choices I made) sit for six years. In that time, with no new contributions, I had finally gained all the value I had lost in the 2001 stock drop. I was ready to move on and wondered what to do with this money.

My financial advisor recommended Transamerica, which invests in several mutual funds, buying and selling funds to maximize returns. He was invested in the plan, explained it was a front-load fund and I thought the philosophy meshed well with my future goals. Now I realize funds that charge a load really are stealing my money, but I did not really think about it so I paid to join the mutual fund. Actually, I almost broke even for the first year in the fund so that was a plus.

However, it was not easy to retrieve the retirement money from my current 403(b) custodian to rollover into the IRA mutual fund I wanted. First, I had to sign lots of paperwork stating "Yes, I would like all the money invested in Wells Fargo Funds to be liquidated and transfer custody to Transamerica, where it will be invested in new mutual funds." The paperwork did not take long to fill out, but required I identify myself, list the custodian of my current funds including its address and phone number, my account numbers and indicate that all the money would be rolled over. Since I was conducting this rollover with the assistance of a financial advisor, I needed a witness as I signed my papers and noted the amount being transferred. The paperwork was then sent to the current account custodian for processing and transfer to Transamerica.

Despite a phone call from my financial advisor to Wells Fargo, it took two or three more phone calls and second round of paperwork to finally get my money transfered to Transamerica. Depending on the customer service agent my advisor spoke with, the paperwork was either adequate, inadequate or unable to be found. However, by April 2007, my 403(b) money was moved to its new custodian, Transamerica and earning back the 5% front-load fee for me.

There are a few options for rolling over money from retirement accounts into IRAs.

Visit a financial advisor.
As my story above illustrates, a financial advisor can help you chose an appropriate mutual fund family for your goals and assist you in taking your money from a retirement benefit plan and placing it into a rollover IRA.

Rollover the money into the new employer's retirement plan.
Many 401(k) plans including my own through Fidelity allow you to take money from a previous job and add it into the new retirement plan. This is not necessary. Money can be left in the previous account until you decide you want to move it, but being able to add it to the new 401(k) or other retirement benefit plan minimizes the accounts you need to keep track of as well as reducing the number of plan statements to review.

Rollover the money yourself.
Many companies like Fidelity, T. Rowe Price and Vanguard would be happy to receive your business (and your money) with a rollover IRA. You can call them via phone or sign up online to open an account. As long as you meet the minimum investment amounts for each fund and fill out the appropriate paperwork for the rollover, you can set up the new IRA yourself. These companies have no-load funds, allowing you to keep more of the money you saved and invested.

Regardless of how you choose to rollover your money, be aware that some custodial companies are more reluctant to release your money than others. Wells Fargo seemed quite tight fisted and required several follow up calls and a second round of paperwork to get my money. Oppenheimer, my Roth IRA custodian, just needed the paperwork I filled out to move my money to T. Rowe Price. If you tackle this job yourself, you may need to spend time coaching the money through the system. However, once the money is in your new IRA account, you can watch it grow (hopefully) and be happy with its new investment home.

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