1. What Should You Do With Your Old 401(k)?
A Rollover IRA Has Its Advantages
If you have changed jobs several times during the course of your career, you
probably have an interesting collection of retirement savings accounts from
your previous employers. In fact, according to the Department of Labor,
Americans move to a new employer once every four years and our collective
trail of old 401(k) and 403(b) plans totals in the trillions of dollars.
While leaving your retirement account with a former employer is a better
decision than cashing out your account and splurging on a boat, it may be
more beneficial to consolidate your retirement savings by rolling your old
401(k) or similar employer sponsored retirement plan into an IRA.
A Rollover IRA offers you four major benefits:
• Increased Investment Options. The biggest advantage of rolling
over your 401(k) into an IRA is the wider universe of investment
choices, a benefit that’s more valuable to you if the choices in your
old 401(k) plan are limited or performing poorly. Most employer-
sponsored retirement savings plans offer a choice of several mutual
funds and/or company stock. However, with an IRA you can invest in
mutual funds, stocks, bonds, and even non-traditional retirement
investing options such as real estate and venture capital.

2. What’s more, if you keep your rollover IRA separate from other IRAs
you may own, and if you qualify to open a Roth IRA, you can decide
to convert the traditional rollover IRA to a Roth IRA where future
earnings on the account are income tax free. Note that whether you
qualify for the Roth IRA conversion depends upon your annual
modified adjusted gross income.
• Easier Record Keeping and Account Maintenance. There’s no
question receiving 401(k) statements from various employers makes it
difficult to monitor what you own and ensure each investment is
playing the role you intended in your portfolio. It’s also more
challenging to guard against harmful portfolio overlap where, for
example, two funds from different investment companies could own
many of the same securities. By consolidating your retirement
accounts into a Rollover IRA, you facilitate the process of reviewing
and rebalancing your portfolio. And, of course, you gain this greater
convenience and control without tax consequences or other penalties.
• Greater access. If, for example, your previous employer changes
401(k) providers, your plan assets will be temporarily unavailable to
you due to a “blackout” period that occurs as funds are transferred
from one plan provider to the other. That time frame can stretch from
a few days to a few months. In addition, you can tap your IRA
penalty-free before age 59 ½ for the purchase of a first home or
college expenses.
• Flexible Estate Planning. IRAs also offer more freedom, as well as
the potential for tax savings, in the estate planning department. If you
want to name multiple beneficiaries or a charitable organization as
your beneficiary, that is best done with an IRA. Many employer-
sponsored plans do not accommodate sophisticated beneficiary
designations.
An IRA also affords your heirs more flexibility. For example, if you
have named a non-spouse as the beneficiary of your 401(k) plan, it is
likely that your former company’s plan administrator will insist that
the account be cashed out immediately, resulting in a potentially
larger tax bill and loss of the benefits of ongoing tax deferral. With an
IRA, you can designate a younger non-spouse as your beneficiary and
that individual can stretch out the minimum withdrawals over his or

3. her lifetime.
Also, when your assets are invested in an IRA, your beneficiaries can
get the information they need easily, rather than tracking down your
former employers and completing multiple forms.
Ironically, while a Rollover IRA certainly increases your flexibility in terms
of investment options and planning for the future, the rules governing the
rollover are anything but flexible. And if you don’t play by the rules, you
could face an unexpected tax bill.
Generally, when you take a distribution from a 401(k) plan that you intend
to rollover, you must contribute it back into another IRA or other tax-
deferred retirement plan within 60 days. If you do not rollover the funds
within 60 days, the distribution is taxable. Also, in most cases, a 10%
penalty for early withdrawal applies if you are younger than 59 ½ years of
age.
To keep it simple and avoid careless mistakes, a direct rollover, also referred
to as a trustee-to-trustee rollover, is often a better choice than cashing out
and receiving a check from your former employer. With a direct rollover,
your current plan sends a check not to you, but to the firm that serves as the
custodian for your new IRA.
Plan sponsors are required to withhold 20% of the proceeds from your
401(k) as prepayment of federal income taxes if you ask your plan for a
check. If you eventually roll over these assets, you will have to make up the
20% that was withheld by your plan sponsor or that amount will be taxed as
income and could be subject to an early withdrawal penalty.
Note that it is possible to petition the Internal Revenue Service (IRS) to
extend the 60-day re-investment rule in certain circumstances, particularly if
you need time to correct errors made by financial institutions or time to deal
with health issues or family problems. However, if you first consult with
your financial advisor, you can be confident that your IRA rollover will go
smoothly -- and that you’ll enjoy the benefits of your Rollover IRA for years
to come.
Tom Vilord
President

4. If you would like to meet with us to review your
current investment goals and objectives or would
just like a second opinion on your current plan,
please give us a call at:
856-227-2288 or 877-VILORD1
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