I have discussed rolling over your IRA, for example, when you have left a place of employment. In fact, I have rolled over my 403(b) into a traditional IRA. Hindsight being what it is, I wish I would have done things differently.
When I was looking to rollover my 403(b), I had to wait over six years for the amount of money I put in and the value of the account to equalize. This was made more difficult by the fact I make my contributions from 1999-2001 and then left for a new employer. The tech stock crash of 2000-2001 left me with almost 50% of the value of my pretax contributions gone. It was not a pretty sight and I ignored the account for the better part of five years.
However, I received a call from a new financial advisor in late 2006 to ask me to come in and evaluate my accounts. I had not talked with anyone for a while since my previous advisor had left the credit union of which I am a member. So I came in with my statements and we discussed my options. He recommended rolling over my 403(b) into an IRA account. Since the value was near my contribution values, I was interested in doing something different. The financial advisor suggested a growth investment portfolio with TransAmerica, and said he was invested with them as well. I thought that was a good recommendation.
He explained that the account was a front-load fee and was actively managed with shares of stocks and other mutual funds changing as the managers saw more opportunities for growth. My advisor told me that even though a 5% fee would take money from my initial investment, I would likely make it up the money in a year or two.
What does this all mean? Well, a front-load fund basically means that the mutual fund firm takes my money, removes 5% from the money and then invests the remainder for me as I specified. In the case of the fund I invested in, no fees would be charged to take out the money when I would want it in the future. I basically paid a fee up front for the company to take my money and invest it. I made this decision based on two flawed ideas:
1. My financial advisor liked the fund enough to invest in it himself so it has to be good.
2. As long as my money continued to grow, I did not think much about the 5% front-load fee.
Why are these ideas flawed? I never asked if the financial advisor received any benefit from me investing with the company. The second, why give up more of my precious money than I had to? I started out with a small amount of money, $5,400, to invest. Removing 5% then putting it in a market starting in 2007 was not an ideal move. I lost money to start with and my last statement had me with a value of just over $3,100. And that was after nearly gaining back my 5% fee off the top. If I was going to lose over 40% of my portfolio, I would rather have lost less of my money to fees.
If I had to do this over again, I would invest only in no-load funds (those with no fees), most likely index funds like those of Vanguard, Fidelity and T. Rowe Price. Yes, the value would still be down but I would still have more than if I invested in loaded funds. Now I know to check not only what fees are charged for investing, but the maintenance and management fees which can easily add up to 2% or more of the value of the fund. For the future, I plan on keeping more of my money for my investments and both asking more questions and reading the fine print more closely.
To educate yourself about investing, visit the following resources:
CNN Money 101
Balance Track overview
Fidelity basics
Showing posts with label rollover. Show all posts
Showing posts with label rollover. Show all posts
Monday, April 20, 2009
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.
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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