What to do with former job retirement accounts.

[dakcp2001]

I left a job years ago, and still ave a small pension and vested 401k account just sitting. I keep getting letters offering a lump sum settlement for the pension, and it seems scam like in the wording. Several former colleagues have Aiken the lump sum and the tax penalties, and others have rolled the accounts into new accounts. But what to do with these accounts? I have a 401k at my current job but it is not vested yet, for another year and a half.

I am not sure what to do with them. Are there any investment options that are safer bets?

 

[chris31997]

You could roll it over to a ROTH saving account and potential avoid taxes. Would need to open ROTH account with someone I belive but not sure.

 

[IUTBAM]

You could roll them over into a regular IRA and avoid the penalties and taxes.

 

[Zerosinthecloset]

"Aiken"????? Not familiar with this word.

 

[dakcp2001]

"Aiken"????? Not familiar with this word.

Taken, it was autocorrect

 

[Tink-n-MrIncredible]

Sorry I can't help you with the answer. Hopefully some knowledegable diser can help you. If not there are several other forum type sites that focus solely on money questions. Maybe you could search the Clark Howard, Suze Orman, Savings Advice (I learned this site from other diser's on the board ) or Boglehead forums. I'm not endorsing any of these. These are the ones I know about. There are pleny out there. Try doing a search in google or bing. This reply is just my .02 as I am not any type of financial advisor or planner.

 

[ptcrn]

I had the same situation and just rolled them all over into a regular IRA. Easy to do and no taxes or penalties.

 

[beckybowler]

You should be able to roll it over into your current employers 401k plan. The rollover amount (your money) will not be subject to any vesting schedule. Just ask the HR department or the administrator of your current plan.

 

[cluvsdisney]

You could roll them over into a regular IRA and avoid the penalties and taxes.

I would do this. You could talk to a financial advisor, someone at your bank or even the company that manages the 401k plan to discuss some IRA options. I wouldn't roll it over into your current 401k plan, you will be limited to investments offered by your company instead of having the choice to invest however you see fit.

 

[Karenj2]

I have/had a similar situation - I was vested in my previous job, and had both a pension and a 401k. What I did was roll my 401k into my current 401k (looking back, I probably should have rolled it into an IRA instead, but since I'm only 39, I'm not planning on touching it anyway for years...)

The pension I've left alone - but I'm pretty confident that my pension isn't going to disappear... If I was at all nervous about it, I'd probably take the lump sum. (Which they'd rather you did, because it means they pay out less than if you wait until you retire.)

Please take my experience with a huge grain of salt - I didn't follow any financial advice - I just did what I thought was appropriate for me at the time.

 

[crisi]

I had a pretty conservative CPA for a college profession. He would recommend...

On the pension, do the math for the present value. Then figure out if you are getting a good enough deal on the pension to face the risk. There is a LOT of risk in pensions right now. They probably won't give you much of a rate as a lump sum, though.

On the 401k, roll over either into your new employers 401k or one through a bank or investment firm. Over time, companies will change their 401k providers and 20 years from now if you move a few times and the firm has changed, it may be difficult to find that money.

 

[PatsMom]

The pension is perhaps the most complicated. As PP mentioned, you need to do the math. You have to figure out what the present value of the promised benefit is and what the assumed interest rate has to be to pay you that benefit. If the pension plan is assuming an 8% rate of return, I wouldn't touch it right now. But what typically happens with cash balance plans (which is what it sounds like you have) is that the money earns a low interest rate each year. When you draw the pension, you can take a lump sum then or you can take monthly payments. So if you think you can earn a higher rate of return than the plan assumes, you would be better off to roll the lump sum into an IRA account.

For the 401(k) piece, most 401(k) plans do not offer more or better investment options than you will find in a mutual fund marketplace such as Fidelity, Schwab or Vanguard. But what you may have is institutional class shares that have a lower expense ratio than you could buy on the outside. For example if you hold a low expense share class of the Vanguard 500 in your 401(k), if you roll it over and want to buy another S&P 500 fund, you may pay more in fund expenses. Especially where index funds are involved expense ratios are a huge thing to look at. But for most of us, there really is no advantage to leaving it in the plan.

I know Fidelity has a special service team devoted to helping people set up IRAs and roll over old employer money. I believe that Schwab and Vangaurd may as well. I know TR Price does but then you would be restricted to TRP funds and I wouldn't want to build a diversified portfolio using only one fund family.

 

[furb & dez]

If you take a lump sum/cash out your 401(k), you lose at least 20% in penalties right off the bat, plus you'll pay taxes on the income that year.

If you roll it into a Roth IRA you pay taxes on it in the year to you do this (Roth IRAs are post-tax money).

If you roll it into a regular IRA you pay taxes on it when you start taking distributions (IRAs are pre-tax money).

If you roll it into your current employer's 401(k), you'll be stuck with whatever restrictions your employer's plan has.


It's not an easy choice. Do the math and talk to a tax advisor. A board full of strangers is not a good place to get financial advice.

 

[MomToOne]

You could roll them over into a regular IRA and avoid the penalties and taxes.

This, or rollover to a Roth IRA but then you will have to pay taxes (but no penalties).

Either way, you will need to open the IRA account first, then fill out the paperwork to do the rollover out of your 401K account.

 

[brerrabbit]

Set up a self directed IRA. Basically they will transfer your holdings from your former company into an IRA with Fidelity, Schwab or whoever you choose. Then you can sell those holdings and invest in any funds the current broker offers. I have rolled three into my self directed Fidelity account over the years. If you do not choose a Roth account then there is no penelty and no taxes. I would caution against moving those funds to your current 401. Most times the options are far better with the self directed and less of a hassle when seperating from an employer.

As far as the pension goes you would have to look at the payout vs what it's worth at retirement and make an estimate of which is the best way to go. I have a couple of pensions besides my current employers one and have not been offered a buyout, however the nice thing is I have my self directed fund with Fidelity, my current 401 k and pension is with Fidelity through my current employer, and my pensions from my former jobs are also listed on the Fidelity site. So basically my entire retirement picture is in one place and it works out really nicely. I can see each one and run what if analysis based on different retirement dates and rates of return.

I have the complete picture in one place.

 

[dakcp2001]

Thank you everyone for the advice! I knew I would learn something from you all!

 

[bettymae1121]

While you would have to pay taxes if you roll into a Roth...consider that taxes are at historic lows right now and projected to increase. If you can afford the tax bill I'd do a Roth over a traditional IRA. Then when you retire you can withdrawl it all tax-free, including your investment gains!

But that's just me, and of course you should talk to a financial advisor and/or a tax person before doing anything.