||Ask Dr. Don
Rolling over a 401(k) into an
Dear Dr. Don,
I want to move my 401(k) plan from my former employer to an IRA
rollover account and do my own type of investing.
Can I put it into a bank account, such as a certificate
of deposit? I could get between 4 percent and 5 percent. I have
another choice to go with an S&P 500 index fund that is a no-load
fund with a small handling fee.
You can open an IRA rollover account with a bank and invest that
money in CDs. Bankrate can even show you which financial institutions
offer the best rates on IRA CDs in your market or nationwide on
You have many choices when it comes to where you can
move your money, so I don't know why you're limiting yourself to
either a CD or an S&P 500 index fund. You could open an IRA
account at a brokerage firm and invest in stocks, bonds or mutual
You could also open an IRA account directly with a
no-load mutual fund. If you decide to move the money later, you
can roll it into a different IRA account.
You didn't tell me how much money is in the 401(k)
account, how close you are to retirement or what portion of your
total investment portfolio that this money represents, but seeking
the shelter of an FDIC insured CD with a guaranteed return of 4-5
percent isn't necessarily your best investment decision.
How your money is invested and what retirement account
contributions you need to continue to make will depend on both your
financial goals and your ability to continue to make contributions.
Investing in insured CDs will protect your principal,
but won't give you the opportunities for growth that the stock market
can over time. It's been a rough couple of years in the stock market,
but the 10-year annualized total return on the S&P 500 index
is still over 14 percent through the end of November 2001 while
the five-year annualized total return is about 10 percent.
The longer you have until your planned retirement
the more willing you should be to keep some of your investments
in the stock market. Consider putting some money in both the CD
and the index fund.
It isn't always best to move company contributions
of corporate stock into an IRA rollover account.
-- Posted: Jan. 8, 2002