Ask the Dollar Diva By Dorothy Rosen • Bankrate.com

What should I do with an IRA rollover?

Dear Dollar Diva,
What is available for my IRA rollover other than a direct rollover to an IRA CD? The return on CDs is relatively low.

I am unemployed and do not expect to make any more contributions this year.

Can I invest half in a mutual fund and leave the other half in the IRA? I have not rolled this money over yet and need advice soon. The amount is about $2,500.

You are smart to reconsider your Individual Retirement Account options. If you will not need this money within the next few years, you should consider an investment that will give you a better return.

You are also smart to know that you should do a direct rollover from your current bank to whatever investment institution you choose for your new IRA. If you close the account and the money is sent to you, the bank is required by the Internal Revenue Service to withhold 20 percent for taxes, and then you're taxed on the rest.

As you roll over your funds, you have a new opportunity to reallocate your money, according to your tolerance for risk and your age. In general, the closer you are to retirement, the less money you should put in risky investments.

Here are some of the common investment types, beginning with the lowest risk and ending in the highest:

• Low risk/low return: Money market funds and current income from U.S. Treasury issues and other safe investments.
• Bond funds: For current income from bonds.
• Balanced mutual funds: Comprised partly of stocks, partly of bonds for income and some growth.
• Equity income mutual funds: For income and growth from stocks.
• Growth and income funds: For current incoome and potential long-term growth from stocks.
• Growth funds: For long-term growth of capital from stocks.

The Diva recommends that you do not split the $2,500 into multiple accounts. Many of them charge an annual fee, and you don't need to think about diversification until you have more money accumulated. Also, you will have a better selection of funds to choose from if your initial deposit is larger.

The Diva also suggests that you consider a higher-risk investment if you will not be withdrawing your IRA money for at least 10 years, and a lower-risk investment if you will be withdrawing your IRA money within the next few years.

DOROTHY ROSEN has a master's degree in finance, with a specialization in accounting, from the Kellogg Graduate School at Northwestern University in Evanston, Ill. Rosen has more than 15 years of experience in the financial arena, serving in Illinois and Florida as a certified public accountant, financial consultant, expert witness and educator. She is owner of Dorothy Rosen, CPA, a public accounting firm that serves individuals and small businesses.