Employer’s retirement plan transfer options due to new job
Hi Terry, I listen to you on WGN radio often and always appreciate your clear and wise advise. I realize this is a general question but I would really like your opinion or direction in making this decision. I am 62 1/2 years old and recently changed jobs. I would like to rollover my employers 401K plan. My former investment is with Charles Schwab. My new job has a Charles Schwab option although I’m not eligible to contribute until June.
Would it be a good move to roll my account balance into a Roth IRA or keep it where it is? I’m unsure about the new plan option as I will need to be employed for 6 years before I’m fully vested.
There is so much to consider when changing jobs and I’m pretty close to retirement age so I am concerned about having to make changes again in a couple of years.
Thank you so much!
Terry Says
Well, you’re thinking along the right lines — but you have some of the facts wrong!
It may be a good idea to do an IRA rollover from your previous 40l(k) plan. You can go anywhere with it — Schwab, Fidelity, Vanguard, T. Rowe Price. All offer the rollover service and low cost funds. BUT you are NOT going to “roll into a Roth” — because that would be a big tax hit this year. All the money will be considered ordinary income, and you’ll have to pay taxes on it. Unless you have some savings outside your retirement account, just do an IRA rollover to a “traditional” IRA.
Then you’ll have to choose some mutual funds for the rollover IRA. Choose something conservative like a balanced fund or an “equity-income” fund. You’ll need growth but not maximum risk. Avoid bond funds in the new IRA.
I’d suggest moving to one of the other places I recommended, so you don’t get your accounts confused, having a new 40l(k) plan which will also be at Schwab. If you have to wait 6 months to contribute, set some money aside in after-tax savings for the next 6 months. Then when you are eligible, be sure to contribute the max possible. Yes it will cut into your paycheck, but you’ll have that savings from the 6 months you are not eligible to contribute now!
