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Financial Literacy - Securing retirement Click Here
Should you do an IRA rollover?
Moving your 401(k) assets to an IRA rollover is not always the best move. Follow these tips to avoid pitfalls.
Securing retirement

Things to consider before rolling over an IRA

To some, engineering an IRA rollover is like walking several miles in a blizzard wearing a pair of flip-flops. It's easy to get cold feet due to the myriad rules, regulations and complicated financial lingo.

But, with a little planning, it can be a fairly straightforward process.

When you leave a job, you have to decide what to do about your company retirement plan -- and you have four options. You can roll it into your new employer's plan (if the new plan permits), roll it over into an IRA or take a lump-sum distribution. Or you can do nothing and just leave it in your former employer's plan.

Before you make any moves, consider your situation.

Decisions, decisions
Explore your options. If you decide to do a rollover, follow these basics to avoid costly pitfalls and ensure that your hard-earned money doesn't end up working for someone else.
What to do with your 401(k)
1. Leave it behind, maybe.
2. Don't take a cash distribution.
3. Consider cashing out in these cases.
4. Do a direct rollover.
5. Have a plan for your investments.
6. Always name a beneficiary.

Leave it behind, maybe
Sometimes (not often) letting your money stay put in the old plan is the best option.

First the ground rules: As long as your nest egg is worth more than $5,000, you can leave it where it is. But if it's worth less than $1,000, your employer may elect to cash it out and send you a check. If it's worth somewhere in between, most employers automatically roll your assets into an IRA.

Leaving your money behind with your former employer may make sense if:

  • You're approaching age 55, at which time you wish to begin taking distributions. If you separate from service (you're fired, you quit, you retire, etc.), you can begin taking regular withdrawals or the entire balance from a company plan without paying a 10 percent penalty at 55. But if the money is in an IRA, you generally have to wait until age 59 to avoid the penalty.
  • You like the investments in your former employer's plan, they have low expense ratios and the plan provider is famous for offering low-cost plans.
  • You've listed nonspouse beneficiaries (such as children, grandchildren), and you want them to have the ability to convert the assets into a Roth IRA. Or, you want them to have the flexibility to stretch payments over their lifetimes. (Note: Surviving spouses have fewer restrictions with both 401(k) and IRA assets.)
-- Posted: July 30, 2008
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IRA MMA 0.63%
1 yr IRA CD 0.74%
5 yr IRA CD 1.83%
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