 Changing
jobs and retirement accounts
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 Dear
Dr. Don,
My wife just got a job offer and she's going to start the new job
soon. The options we can think of now, concerning her 401(k) money
at the previous employer, are to roll it over to a traditional IRA
or move it into the new employer's 401(k) plan.
The IRA seems to have more flexibility, but I read somewhere that
usually the funds offered within a 401(k) have lower fees. Is it
true that a 401(k) plan has any discount on fees? Which one should
we go with? Thanks.
-- Aiden Arrangements
 Dear
Aiden,
According to Mark Twain, "All generalizations
are false, including this one." I can't make a blanket statement
about whether your wife will face lower fees in her new employer's
401(k) plan than she will in a traditional IRA rollover account.
Regardless of her choice, she should do a trustee-to-trustee (direct)
transfer so the money isn't subject to mandatory withholding.
With some 401(k) plans the employee has access to
institutional funds that have lower annual expenses than retail
funds. That isn't likely in the typical IRA rollover account. Annual
account fees are usually dependent on the size of the account and
are normally waived for larger accounts.
As far as the size of the account goes, it's possible
that it could stay invested in the previous employer's 401(k) plan.
Generally speaking, accounts that have less than $5,000 can't stay
invested in the previous employer's 401(k) plan but larger sums
can.
Another option that you didn't mention is to roll
the account into a traditional IRA account and then convert it to
a Roth IRA account, but she shouldn't take that step without consulting
with a tax professional.
She has the right to have any distribution paid, tax
free, directly to a traditional IRA or another eligible retirement
plan through a direct transfer. If the previous employer's plan
won't do a direct transfer by delivering the account investments
to the new trustee, it is still obligated to provide for a direct
transfer by check. She should be certain to have the check made
out to the new account custodian and not directly to her. IRS Publication
590, Individual
Retirement Arrangements, has more on this topic.
If the investments in the previous employer's plan
include company stock, it's likely to be more advantageous for her
to transfer the stock into a taxable account while at the same time
rolling the other account investments into either an IRA account
or the new employer's 401(k) plan. If she has company stock to consider
she should consult a tax professional before taking any action.
There's a lot to consider here. Putting aside the
corporate stock issue for the moment, she should look at the investment
options in the new employer's plan and see how comfortable she is
with the investment choices, and the fees and expenses relating
to those accounts. If she has a fair amount of money in the old
plan to transfer into an account, I'd lean toward an IRA account
versus putting the money into the new plan. There's more flexibility
and investment choices, and the account fees and expenses can be
managed. Without recommending Fidelity as a provider, I can recommend
the discussion
on Fidelity's Web site about your wife's choices, in deciding what
to do with this money.
Editor's note: Dr. Don has a tax advantaged
retirement account with Fidelity Investments.
To ask a question of Dr. Don, go to the "Ask
the Experts" page, and select one of these topics: "Financing
a home," "Saving & investing" or "Money."
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