I am a 66-year-old retired woman. I left my 401(k) with my old employer – roughly about $300,000 – but now I’m thinking about rolling it over and don't know where to begin. Can you advise me?
-Renee
Rolling over a 401(k) after retirement is a decision many people face, and while the process isn't overly complicated, knowing where to start can feel daunting. Choosing the right type of account, understanding your transfer options and deciding whether to go it alone or work with a professional are key considerations. Fortunately, there are clear steps you can take to simplify this process and make sure your retirement funds continue to work for you. Let's break down what you need to do to get your 401(k) rolled over smoothly.
If you’re looking for help managing retirement savings, completing a rollover or deciding on a withdrawal strategy, consider speaking with a financial advisor.
Open an IRA
The first thing you'll need to do is open an IRA. You'll want to spend some time thinking about where you want to open your account. While most major financial institutions offer IRAs, there are some differences in the services provided and the investment options available.
For example, if you open an IRA with a fund company, your choices may be limited to that company's funds. At a bank, you may only be able to invest in that bank’s certificates of deposit (CDs). I'm not suggesting this is always the case, it’s just something for you to think about as you look around. Compare the fees at each institution, as well.
Do it Yourself or Hire a Professional?
At a high level, you should consider whether you want to "do it yourself" or if you want to hire a professional to help you.
If you want to do it yourself, you can open an IRA online with just about any financial institution you can think of. If you already have an account with one and are happy with it, I might suggest you start looking there.
If you plan to hire an advisor to help you, I'd say your decision should be more focused on finding the right advisor. (And if you need help finding advisors who serve your area, this free matching tool can connect you with up to three fiduciary advisors.)
Initiate the Transfer
Once your IRA is open, you can initiate the transfer. There are two basic ways to do it.
Direct Rollover
The first way is to have the institution that holds your 401(k) account transfer your money to the IRA you just opened. You initiate this process with your 401(k) provider. You can do it as either a direct or indirect rollover. I wouldn’t suggest an indirect rollover unless you have a specific reason to go this route. A direct is going to be the easiest option and least likely to cause you any problems.
With a direct rollover, the financial institution will send a check made out to the financial institution that holds your IRA, and it will say something to the effect of "FBO (Your Name) IRA #XXXXXXXX".
You can get your IRA account number and the address the check should be mailed to, from the institution where you opened the IRA.
ACATS Transfer
The other way is to have the 401(k) provider open an IRA for you, and transfer the money to that IRA first. If you contact them, they will take care of all of that for you.
Then, you can transfer the money from that IRA into your new IRA. If you did it on your own, you can log into your new IRA and request the transfer on that end. Otherwise, you'd contact your advisor and tell them you want to transfer the IRA and they'll initiate that process for you.
This way is less efficient because it requires an extra step. However, there are some potential benefits to this method that you may prefer.
- You can often transfer an IRA to another IRA through the Automated Customer Account Transfer Service (ACATS). This is a digital process, so no paper checks go in the mail. When you transfer via a paper check, there will be a period of time when you don't see your money in an account anywhere. This can be a little stressful to some people. If you are apprehensive about that, this is a way to avoid that delay.
- In some cases you may be able to keep the same investments you have in your 401(k). Again, because this is a digital transfer, you won't necessarily have to sell your assets and re-invest your money once the money lands in your new IRA.
You may not consider either of these things a benefit. But, I wanted you to know that this option exists. (A financial advisor can help you execute your rollover and manage your newly opened IRA).
Bottom Line
A 401(k) to IRA transfer is a pretty painless process as long as you know the steps. First, open an IRA – either one that you plan to manage on your own or with the help of an advisor. Then, decide whether you want to directly transfer your money from the 401(k) or roll it over to an IRA with the same institution and and transfer it to your new IRA via ACATS.
Tips for Managing Your Retirement Accounts
- When it comes time to withdraw funds in retirement, carefully plan which accounts to draw from first to reduce tax exposure. Consider withdrawing from taxable accounts first to allow your tax-deferred accounts (like 401(k)s or traditional IRAs) to continue growing. In lower-income years, withdraw from tax-deferred accounts to fill up lower tax brackets, while leaving Roth accounts for later years when tax rates may be higher.
- Whether you’re still saving for retirement or are now living off your hard-earned savings, a financial advisor can help you manage your assets. Finding a financial advisor doesn't have to be hard. SmartAsset's free tool matches you with up to three vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you're ready to find an advisor who can help you achieve your financial goals, get started now.
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Brandon Renfro, CFP®, is a SmartAsset financial planning columnist and answers reader questions on personal finance and tax topics. Got a question you'd like answered? Email AskAnAdvisor@smartasset.com and your question may be answered in a future column.
Please note that Brandon is not an employee of SmartAsset and is not a participant in SmartAsset AMP. He has been compensated for this article. Some reader-submitted questions are edited for clarity or brevity.
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The post Ask an Advisor: I’m 66 With $300k in My Old 401(k). What Are My Rollover Options? appeared first on SmartReads by SmartAsset.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
