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401(k) Rollover and Transfer

By SallyJane Lim, CFP, CLU, LUTCF

When you leave or resign or get downsized from your current job, or when you retire from your last job, and you were prudent to have contributed into your employer's 401(k) plan, you do not want to leave your 401(k) behind. You would want to take control and  roll it over directly into an IRA. If you withdraw a portion of your 401(k) money to pay some expenses in the same year that you retired, you may be bumped into a higher tax bracket, and will have to pay a hefty income tax on the amount  withdrawn, which is considered a distribution and a 10% federal tax penalty if you are less than age 59-1/2.

At your retirement, because you are no longer working, you will no longer be able to contribute additional money into your 401(k) to make up for losses in the stock market. Therefore, you would want to place your retirement funds into a "safer" environment, where you will no longer suffer any losses of principal, or losses of  prior gains, where your earnings in your account would be permanently locked in and preserved no matter what happens in the market afterwards.

IRA, Roth IRA, TSA/403(b) & Inherited IRA Account Transfers

For those of you who experienced extreme losses in the market and the devaluation of your portfolio in 2000, 2001, 2002, and 2008,  and you decided to play it safe by rolling your then "201(k)" into a Certificate of Deposit (CD) with the bank, and are content with earning 1-1.25% a year (or slightly higher if placed on a  5 or 10 year term) because it is  safe and secure, I have good news to share with you.  


There is a better alternative, where you will have the potential of earning double or triple the returns of your current CD-IRA,  2%-4% a year, either fixed and guaranteed, depending on the number of years, or  quadruple the returns of your CD, 4-6% depending on the performance of the market and other factors.  And your money will still remain ultra safe and secure.  


For those of you who are not enjoying any more or are getting tired of the roller-coaster ride of your mutual fund account (IRA or non-qualified) or for those who cannot afford to lose any more of your life-long savings or retirement money and for those who are not happy in having to give back your unlocked gains whenever the market goes down, perhaps now is the time to stop exposing your nest egg to unnecessary risks and be content with transferring your account into a safer haven. By doing so, you will sleep better at night. You will not need to worry and suffer anxiety and stress.

On the bright side, you will still be able to enjoy the upside and positive returns of the market, without suffering any downside or negative losses or returning your prior gains that you have been experiencing in your current account.   


The average net return (adding all the positives and the negative returns) of a mutual fund account over a ten year period is about 7-8%. With the right carrier and the right product, your new account can achieve 6-8% (or more) consistent return without the risk.

Word of Wisdom:  The perfect time to exit the market is today when the market is still doing well, so that you can bring with you all the earnings you have made and start with a larger account value with the new account. Sadly,  many people tend to wait until the market is down and the losses become unbearable, to get out. So you do not want to  make the same mistake of waiting for doomsday, to act. You'll end up giving back all your gains and having to start with a deflated account value with the new company.  Believe the wise man who cautioned “Quit while you are ahead”, which is applicable here.

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