rolling“Let’s say you are either switching companies or ready to retire. Should you roll over your 401(k) into an individual retirement account (IRA)?” John Wasik addresses the question in a superb personal-finance article on Here are excerpts:

“The natural answer is to roll over into an IRA. It sounds logical because it’s a tax-deferred vehicle and is generally easy to do, which is why some 95 percent of funds flowing into IRAs in 2008 came from retirement plan rollovers.

“But IRA rollovers can put you in a worse retirement savings account than your 401(k). Here are key questions to ask:

“* Do You Need to Do a Rollover at All? You don’t have to do a rollover. You can leave your money in your current employer’s plan. If your present defined-contribution plan offers several low-cost options that are performing well, you may not have to make a move.

“* Have You Vetted a New Plan or IRA? For those considering a rollover, you have to carefully examine the new IRA. Are there fees involved? If so, how much? Is the IRA run by a bank, brokerage house, mutual fund or insurance company?

“* Should You Cash Out? This is a tremendous temptation that far too many retirement savers take. If you cash out before age 59 1/2, you’ll be subject to a 10-percent federal early-withdrawal penalty plus income taxes, so Uncle Sam could be taking up to 40 percent of your withdrawal. Employers often withhold 20 percent of the cash-out just to pay taxes. So there’s no way you can come out ahead on these ‘lump-sum distributions’.

“Don’t look at a rollover opportunity as a chance to raid the piggy bank. Any withdrawal will be costly. Keep in mind that you may be living several decades beyond retirement age. Once you pull the money out, it can’t compound and grow. Say you withdrew $10,000 now. Over 30 years — assuming an 8% annual return — you could end up $100,000 short after 30 years, according to FINRA.

“* Are You Choosing the Best Rollover Strategy? Generally, the worst move is to go from a low-cost, diversified 401(k) to a high-fee, commissioned IRA. Keep in mind that you are trying to preserve your nest egg while seeking income and growth to beat inflation.

“Most discount brokers, mutual fund companies, registered investment advisers and certified financial planners can help you set up a strategy,
but it takes time and patience. Take your time to see what they propose and how much it will cost over time, which they have to disclose.”

Which leads us back to Pension Parameters. Give us a call to have a conversation about whether to roll or not this year.  Ask to speak to Kevin McCormack, President, Pension Parameters Financial Services. (212) 675-9360  or (732) 583 -1313