Choose the financial institution you want to move your money to (that’s the rollover part) and that company will help you switch the money from the 401(k) into your new IRA account.
| I believe keeping your costs as low as possible is vitally important, so I recommend discount brokerages or no-load fund companies that also have a low-cost brokerage arm for your bond and ETF investing. Once you pick the firm you want to move your money to, all you will need to do is complete an easy rollover application form and choose the option for a direct rollover; that means your new firm will contact your old 401(k) directly and get your money moved. Once your IRA is in place, set up an automated monthly investment (from a bank account) for the growth portion of your retirement portfolio. I highly recommend making monthly investments rather than big, once-a-year lump-sum investments. Periodic investments are a way to dollar cost average, a smart investment strategy for stock investing. |
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| If you are eligible to roll over into a Roth IRA in 2009, you have to consider it. There is one big caveat, though: When you convert any money into a Roth IRA that was in either a 401(k) or a traditional IRA, you will owe taxes. So you need to consider carefully how you will come up with the cash to cover a tax bill. One strategy is to convert just a small portion at a time, so you aren’t hit with a staggering tax bill. I also highly recommend you consult a tax advisor with expertise in Roth conversions to make sure you choose a strategy that does not put you in a tax bind. But here is what you need to understand: the money in your 401(k) is, in most instances, tax-deferred. That means when you eventually withdraw money from it in retirement, it will be taxed at your ordinary income tax rate. |
| If you roll it over into a traditional IRA, the system stays the same for tax purposes. A Roth IRA is different: You invest money that you have already paid tax on and then in retirement you get to take out all the money in your Roth without paying any tax on it. So the smart thing to do with your 401(k) is to roll it over first into an IRA rollover. Then, depending on how much money you actually have in your IRA rollover, you would either convert it to a Roth IRA lit le by lit le or do it all at once. Remember, you will owe taxes on whatever amount of money you convert. But if you go through this effort there is a nice playoff: h e growth on the money in your Roth IRA will be tax-r e if you leave it untouched until you are 591/2 and have owned the Roth for at least five years. |
