Jami
“Dear Steve,
I’m losing money in my 401k. I left my 401k in my ex-employers plan. I started at $73000.00 and now it is down to $47,500. I really want to get it out of there but I have no idea where to put it. Can you offer any ideas?
Jami”
Dear Jami,
I matters like this I turn to my friend Paul Bennett at c5 Wealth Management for advice. Here is what Paul wanted you to know.
The good news is since you have satisfied the “separation from service” IRS requirement; you can rollover your 401k into an IRA. There are a few things that you should consider before doing so:
- Your Investment Choices Expand Immensely: You will be able to invest in basically any type of investment (mutual fund, stock, exchange-traded fund, bond, etc.)
- No Loans: An IRA does not have a loan provision, whereas your 401k probably does – in other words, you won’t be able to take a loan from the IRA. If you transfer the 401k to a new 401k, you should be able to maintain a loan provision.
- Direct Transfer: Make sure that you do not take possession of the funds if you decide to leave the 401k – as this can trigger taxes and penalties. Your best bet is to discuss this with the HR department of your prior employer to ensure that if they cut you a check it is made payable to the company where you establish your IRA, FBO (“For the Benefit Of”) your name and account number (Example: Charles Schwab & Co, Inc, FBO John Smith, account# 12345).
- Hire an independent professional Financial Advisor: Hiring a credentialed advisor (preferably a Certified Financial Planner) [Editor: like c5wm] is your best bet to ensure that your new IRA rollover is handled correctly and allocated properly based upon your risk tolerance, objectives and time horizon. Working with an independent advisor who acknowledges that he/she is a fiduciary makes certain that he/she acts in your best interest at all times.
I hope that helps you find your way.
Steve & Paul
Steve Rhode is the Get Out of Debt Guy and has been helping good people with bad debt problems since 1994. You can learn more about Steve, here.
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