WASHINGTON Jan 30 There comes a moment in a
retiring worker's life when he has to decide what to do with the
money in his 401(k) plan.
He can leave it there. If he's moving to another job, he can
transfer it to his new retirement plan. He can take out the cash
and spend it. Or he can transfer it directly into a personal
individual retirement account (IRA) at a financial institution
and continue to reap tax benefits for the money.
Put all of those moments together and there is a lot of
money in play. More than $1 trillion in
defined-contribution-plan assets are eligible for distribution
every year, reports research firm Cerulli Associates. In 2011,
some $307 billion rolled over into private accounts, and that
number is expected to grow every year as the baby boom starts
heading for the exits. By 2017, more than $450 billion should
roll out of defined-contribution workplace accounts into private
If you add up all the money that was in various workplace
and personal retirement accounts at the end of the third quarter
of 2012, that's $19.4 trillion, according to the Investment
Company Institute. It's no wonder that financial firms are
sharpening their sales pitches and the Consumer Finance
Protection Bureau is said to be eyeing that space for possible
regulation. According to press reports, regulators there have
taken to referring to the issue as the "rollover moment."
It's a weighty one for workers who know this pot of money is
theirs to protect and live on for the rest of their lives.
"Internally, we call it the moment of truth," said Karin Risi,
head of Vanguard Advice Services.
"The decision itself can be very overwhelming," Sarah Walsh,
vice president of retirement solutions for Fidelity Investments,
said in an interview.
You needn't be overwhelmed. Here is what to keep in mind.
-- There's no real urgency. As long as you have at least
$5,000 in your 401(k) plan, your company is required to hang on
to it as long as you want. You can attend to the other issues
around retirement or job change and take the time necessary to
research your options.
-- There are reasons to leave your money in your 401(k).
Maybe that is why more than $2 of eligible assets stay in
workplace plans for every $1 that moves to a rollover, according
If you are retiring early and want access to your money,
know that you can start making penalty-free 401(k) withdrawals
at age 55, but you will face penalties on IRA withdrawals until
age 59 1/2 (with some technical exceptions). And while the legal
language is confusing and varies from state to state, it's not
clear that assets in rollover IRAs have the same protection from
creditors as defined-contribution-account assets have.
Workplace 401(k) plans, especially at large employers,
typically offer solid mutual funds at rock-bottom prices and
some automated management, so you may just want to take
advantage of that. But not all plans are equally good, so make
sure your plan's offerings are what you'd want if you were
shopping for investments in the open market.
-- Get advice from multiple sources, or do your own
research. Worker advocates worry that the same people giving
advice stand to benefit from it. Investment companies like
Vanguard, Fidelity, T. Rowe Price Group Inc and TIAA-CREF, and
insurance companies like Principal Financial Group and John
Hancock all manage 401(k) plans for employers, and also sell
rollover accounts and investment products for individuals. They
offer "rollover moment" advice to workers too. It's not a huge
leap to think they might be directing workers toward their own
"Arguably, it's a conflict of interest," says Norman Stein,
senior policy adviser for the Pension Rights Center, an advocacy
organization. Stein says some companies are better than others
at offering independent advice on the rollover decision,
depending on their business model. Advisers to smaller
retirement plans are more likely to be dependent on product
sales and higher fees, for example.
"We are held to pretty high standards. We are providing a
service to the plan sponsor and we have to be fair and
balanced," said Fidelity's Walsh. "We're not going to promote
other financial institutions, but we tell them that there are a
lot of providers that provide rollover IRAs."
So, find those providers for yourself. Look for low fees, a
broad menu of investment choices, and rollover options that
allow you to change your mind without surrender fees. If you
don't feel qualified to choose your own investments, listen to
the advice you get at work and call a few low-cost fund
companies for help. All of the major no-load mutual fund
companies mentioned here will walk you through your rollover
choices and investment options. You may also want to talk to an
independent financial adviser whom you pay by the hour for
advice and who will not be looking to manage your money after
helping you vet investment companies. Check the Garrett Planning
Network () to find one.
-- Don't worry about the paperwork. Virtually every company
that takes rollovers will help you accomplish the transfer, so
don't favor one place over another because it claims to speed
the paperwork. Whether you move your money directly to the same
firm already managing your company plan or an unrelated one, it
should not take more than a phone call to start the process. You
may have to fill out forms and wait a few weeks for the money to
actually move, but it's not insurmountable, and it should not
take forever. Just...a moment.