rollover fears and anxieties
Thanks for your letters. Frankly, I'm often at a loss when someone
asks me what they should do with their retirement money. It can
get really complicated, as I explained in a recent column on retirement-plan
distribution land mines. However, that column prompted many
of you to ask questions. So I'll attempt to answer them, recruiting
the help of experts in the field.
In the future, it's probably best to direct personal
finance queries to Bankrate's Dr. Don Taylor, who has the credentials
with an impressive array of abbreviations trailing his name (Ph.D.,
CFP and CFA). I am simply a journalist who enjoys writing about
financial issues that affect Americans. But that doesn't mean I
don't enjoy hearing from you. Thanks again!
Dear Boomer Bucks,
I plan to retire at 62, in two years. I have a 401(k)
at work and would like to roll over my 401(k) into
something that I will not have to pay tax on, but will be able to
withdraw money from if I have to. Is an IRA the way to go?
In many cases, it makes sense to roll 401(k) money
into an IRA, though I suggest you do a trustee-to-trustee transfer
of funds so that the funds are not subject to a 20-percent mandatory
withholding for tax purposes. In other words, the name of the game
is to keep the tax-favored status of the money intact as you move
Then again, you can leave it in your 401(k)
plan and make withdrawals from it after retirement.
"It's worth noting that as an ERISA plan, the
401(k) has a little more creditor-protection value
in the event of a future liability, although the improved protection
for IRAs under last year's bankruptcy act makes this a less-urgent
issue than it once was," says Michael Kitces, director of financial
planning at Pinnacle Advisory Group in Columbia, Md. (ERISA stands
for the Employee Retirement Income Security Act, a law passed in
1974 that established minimum standards that protect workers in
Before you do anything, I strongly suggest that you
do some research to determine how to set up your retirement accounts
to your best advantage since you are on the cusp of retirement.
Mutual fund companies are a good source of information. Many offer
retirement-planning service programs for a reasonable fee. For instance,
Fidelity has an "income management account" that coordinates
your income from sources such as Social Security, pensions, IRAs,
etc., to help you meet your retirement needs.
You might also want to check into getting an immediate
annuity with a portion of your assets if you want guaranteed income
for life. To get an idea of the lump sum you need to have for a
particular monthly payout, check out the calculator at immediateannuities.com,
but use this as a starting point in your research. Low-cost providers
such as Vanguard and TIAA-CREF offer annuities. Make sure you understand
all your options before making a decision.
If you feel more comfortable working one-on-one
with a financial planner, shop around until you find one that satisfactorily
answers all your questions. A good one can be an invaluable resource
for investment planning and retirement income management.