Transfer of 401K to IRA

[jlf]

Get in touch with a large no-load mutual fund group. Tell them your story. They will send you the paperwork to effectuate a Direct Rollover of your former 401(k) account to an IRA. I suggest an S&P 500 index fund. ROLL THE MONEY OVER FIRST TO A TRADITIONAL IRA AND THEN TO A ROTH IRA. DO THIS AN YOU WILL BE AN I WITNESS TO THE MIRACLE OF COMPOUND INTEREST.

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[Guest Renee K]

Early this year I started a 401K plan at my previous job. My new employer does not provide any retirement plans, so I want to transfer my money over to a IRA. The problem is that I have less than $400 in the plan. My bank told me that I have to either cash out the 401K or transfer it over to a IRA Savings account with 2% interest. The IRA savings is problematic since she told me that I can never add money to it, and cannot access it until retirement. I am not sure that I want keep track of such a small account earning no interest for the next forty years. Are there any other options???

[Guest sacobb]

I agree. An IRA is simply a tax shelter - its not required to be in a CD or money market account. You can invest in stocks, bonds, mutual funds, etc. I would suggest, however, that as you shop for a mutual fund company to establish your IRA, be watchful of any minimum amount required to establish an account and also pay attention to any fees, commission, or loads charged by the funds. You might also consider some asset allocation type funds in which you are diversified among bonds and different types of stocks (Iarge cap, small cap, international). These types of funds can return just as well as an S&P500 fund but with generally less risk/volatility. An investor quiz offered by many of the mutual fund companies, might help you determine your risk tolerance and assist you in picking the funds that best meet your investor profile. Good luck!

[LCARUSI]

If you wish to establish the IRA with the bank (and I'm not necessarily recommending that), you CAN add to it. That is to say, you could make continuing IRA contributions to that account. However, if you do contribute to the account, it is no longer a "conduit IRA" and you would never again be able to rollover any portion of it to another qualified retirement plan, e.g. another company's 401(k) plan.