I have just been informed by my employer they are terminating our 401K program because of declining participation by eligible employees.
I need to figure out what to do with this money by November 15. I would like to roll this over into an IRA or something similar but have no clue what my best option might be. My preference would be something as similar as possible to what I have had in the past, i.e. a way to have x% of each paycheck go directly into an account that will be invested and managed for me.
I realize I will need to contact a financial professional and would also appreciate any suggestions on where to go. Would it be smart to go to TD Ameritrade or Schwab or my local bank?
I seriously have no idea what would be in my best interest in planning for my retirement so any suggestions would be welcome.
I’d recommend opening a rollover IRA with Vanguard and moving your 401(k) money there. Also, you should open a Roth or conventional IRA and contribute to that if your company isn’t going to have a 401(k) any more. And you may not need a “financial professional” but if you feel you do, work with a fee-only certified financial planner. Don’t go with someone who receives fees based on your investments.
Roll it into an IRA. Call up TD Ameritrade, they will walk you through it, it just involves opening an IRA acct in TDA, then filling a form to transfer the 401K.
Once the $ is in TDA, you will be able to buy whatever you want with it. However conservative or risky.
I agree with Dewey Finn that if you decide you need a financial planner, only consider fee-only certified financial planners.
One tip you’re going to need to be aware of is that although you absolutely should open up an IRA, without your employer sponsored 401(k) you’re only going to be able to contribute $5500 per year, slightly more in the future or if you’re over 50.
If that’s less than you’re intending to save a year you’ll need to set up another account to invest in, besides your tax advantaged IRA.
I just turned 51 so there is a different ceiling but I had already seen there would be a cap on how much I could put in annually. Thanks.
This is part of what I am actually wondering about. Looking at my quarterly statement I see I have shares in different funds or bonds like “Aberdeen Small Cap Fund C” or “Goldman Sachs High Yield Fund C”. When I roll this over how does that change? Will any future contributions I make continue to be allocated like I have done in the past or will I have to make different choices about what to buy?
I appreciate the responses but I really have a very poor understanding of this stuff so pardon any dumb questions. I just want to be sure I am doing what I can to get the best yield so I don’t end up eating cat food when I’m 80.
The money in the IRA account is yours. You manage it. No one allocates it to anything except you.
When you deposit money into it, it will show up in the account as cash. You can either leave it as cash, or buy stocks or funds with it. You can also sell any stocks or funds that you bought previously, with the proceeds showing up as cash in your account.
With stocks, you can do it 100 times a day if you like. Mutual funds (like Aberdeen Small Cap Fund C) you can only buy or sell once a day (you place an order, they execute it at the end of the day at the end of the day price).
Short answer: When you do the rollover you’ll have to buy new funds, and future contributions will be made to whatever new funds you choose. Nothing about it will be automatic or simple - sorry. Hypothetically you could find all the same or similar funds with your new IRA provider but you’d be doing the legwork yourself. In other words, you’d still be making choices about what to buy, but your decision would be to find a similar allocation to what you had.
You could look at buying a “life cycle” fund which would automatically invest the money in a variety of funds appropriate for your age.
If you’re really nervous you could find that financial planner. For the money you’re paying they should do the rollover for you and identify appropriate investments in your rollover IRA.
And that’s where you may need a fee-only planner. Some funds offered in 401k’s are not available to the general public. Depending on what types of shares you have, you may be able to transfer your current holdings directly into an IRA - but I think the odds are that the current trustee will sell your shares in everything and then transfer the cash equivalent.
At that point, you’ll want to invest in low cost funds (Vanguard has a bunch). An alternative to a planner is a site like https://www.futureadvisor.com/ - it gives automated advice for free. From what I can tell, it seems to be reasonable, YMMV. Not affiliated.
One thing to be careful of. It’s best that the money is transferred directly from the company holding the 401(k) to the company that will manage your IRA.
401k plans are sometimes/usually administered by big companies like Schwab or TD Ameritrade or Fidelity, etc. If that is the case, the administrator company will likely/should have already contact you to suggest rolling over the amount into and IRA with them. If that is the case, you should take them up on it. The difference between any of the alternatives at this point are negligible for you. As others have stated, once the money has been rolled-over you will have to make the investment choices. That takes care of the current value of your 401k.
As for any planned future contributions - understand that those will likely go into a separate account. In order to keep getting some tax benefit the account type would likely be a Roth IRA, or a Personal IRA (not a Rollover IRA). You may choose to make the same investment choices in this separate account.
Due to the contribution limits on a Roth or Personal IRA, in order to keep saving the same amounts that you have been, you may choose to also have a third account where you make contributions without any tax advantage. This would be a standard investment account. Again, you may choose to make the same investment choices in this separate account.
Highly recommend calling a Dave Ramsey recommended financial planner. Go to his website and look for an ELP.
I don’t think much of his Jesus stuff, but he’s smart about money, and his referrals are top rate. You’ll get a straight up person, with no salesman type talk.
I don’t think that is exactly right - I’m pretty sure that he’ll be able to make additional contributions to his rollover IRA account, instead of having to open and keep track of another one.
If he wanted to go with a Roth IRA for future contributions (and that’s another can of fish), then he would need to open a new account.
Except you might want to segregate the rollover IRA from any new contributions. I think you can move the rolled over money to a future employer’s 401(k), but not any contributions you make separately. I’m not sure why you’d want to move money from a previous employer’s 401(k) account to a new employer’s 401(k) account but I believe it is an option.
My current 401K is administered by Merrill Lynch. We were just notified this morning that our employer is “closing” the plan due to “waning participation”. There will not be a plan set up to replace it. They want us to tell them what to do with the funds by November 15. I’m trying to get a jump on this rather than wait to the last minute.
And thanks for all of the responses and suggestions so far.
Afraid I cannot second this. Wife insisted, we tried it for a year. Don’t think we got value for the money. I’d join the ‘fee-only’ chorus if you’re feeling intimidated. Also, you might try out a Dummies-type book for an overview of the financial world.
Does Merrill actually administer the plan, or are they the broker of record? Though they can act as the plan administrator, they usually partner with someone else (Transamerica, ADP, etc.) for that piece of it.
After more than 20 years of investing with an advisor I have chosen to do it myself - in a very simple and understandable way.
The advisor had done well for me, primarily in stocks - but when we started talking about my 401k (with several times more dollars) - it became clear that the fees on recommended funds and his management fee was going to amount to as much as I would get on an annual basis. Not wanting to “pay” him as much as I would get, I decided on this strategy.
Here is a discussion of the strategy by a bunch of really smart guys.