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Forgetting retirement money

By Barbara Whelehan ·
Friday, November 5, 2010
Posted: 3 pm ET

Half of American adults who have participated in a 401(k)-type retirement plan left their account at a previous employer, according to a new survey commissioned by ING Direct USA's ShareBuilder. Nearly one in five leave $50,000 or more behind.

"Shockingly, nearly 30 percent of these Americans fail to roll over their retirement savings into an IRA or new 401(k) because they are unsure about the rollover process and/or where to put their money, don't have the time to roll their retirement money over or have simply forgotten about their account," according to the press release.

Is this really shocking? Is it really a failure on their part? Forgetting that you have such an account is shocking, but many people deliberately choose to leave their money in a former employer's plan.

But the retirement industry is salivating over rollover IRA business, and spinning this as a shocking failure just might spur some people to move their assets. As a matter of fact, the president of the organization that commissioned the survey attempts to dispel the myth that rolling over assets is a lengthy, arduous process. "In reality, it's possible to roll over an old retirement account in just 15 minutes," says Dan Greenshields in the release.

Is rolling over always a good idea?

Sometimes it's best not to roll over your 401(k) plan. Bankrate recently ran a story giving six reasons not to roll over your 401(k).

One good reason to leave it behind is if you're happy with the plan provider and the low costs of your plan. Roughly one-fifth, or 21 percent, of survey respondents said that's why they didn't move their assets.

Another 12 percent said they'd rather have their assets in a 401(k) than an IRA. While an IRA generally affords more investment flexibility, a 401(k) plan may offer better protection from lawsuits and creditors than an IRA.

Also, if you have a portion of your assets invested in your previous employer's company stock, you may want to leave it untouched until you're ready to handle the transaction in a tax-favorable way, which does not involve rolling it over to an IRA but rather to a taxable account. In this case, be sure to hire a knowledgeable financial adviser who knows how to take advantage of net unrealized appreciation.

You may also want to take advantage of the opportunity to roll your 401(k) assets into a Roth 401(k), as Jennie Phipps describes in her recent blog post.

To do this, "Plans have to offer the Roth 401(k) and then amend the plan docs to permit conversions," says Bankrate's senior financial analyst Greg McBride, CFA.

Of course, it may not always make sense to convert to a Roth. In her next retirement blog post, Jennie promises to analyze this retirement planning move further.

Will your retirement plan afford you haute cuisine in exotic locales? Or potluck dinners with your neighbors? Apply for a free Money Makeover, to be featured in Bankrate's upcoming Retirement Reality series.

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