text: Personal Finance Jan 8, 2014 @ 11:38 AM
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  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)?
  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.
  How do you know how your current plan compares to the 401(k) universe? Start with a service like Brightscope, which rates plans. If your plan is below par, then consider switching to low-cost mutual or exchange-traded funds offered by the DFA, Fidelity, iShares, T. Rowe Price, Schwab, SPDR ( State Street ) or Vanguard groups. Disclosure: I have my IRA rollover funds in iShares and Vanguard funds.
  * 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?
  No matter which financial services firm you choose, they will want to sell you products that will have management expenses and possibly commissions. You can, of course, set up a "self-directed" IRA that allows you to trade securities, but you have to ask yourself if that's a good idea. Most people don't do too well with individual trades after transaction costs are deducted.
  * 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.
  You have 30 days to decide what to do with your 401(k) funds when you change jobs. Here's a helpful guide on making the switch.
  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.