CHICAGO (Reuters) - Back in the day, you could walk into a bank to open a new account and walk out with a free toaster.
Today, you can get anywhere from $50 to $2,500 for rolling over a 401(k) into an Individual Retirement Account, or just by moving an IRA from another financial institution.
But since banks are not in the habit of giving away money, you need to ask: What is the catch?
IRA providers use cash incentives, which are cheaper than advertising or direct mail, to acquire new customers. The latest marketing twist comes from Fidelity Investments, which is offering an "IRA Match" program to new and existing customers who transfer a Roth, traditional or rollover IRA to the company. Rollovers from 401(k)s are not eligible.
Fidelity will match your contributions up to 10 percent for the first three years that the account is open, although you would have to roll over a whopping $500,000 or more to get that level of match.
For most people, the match will be much smaller. A rollover of $50,000, for example, would qualify for a 1.5 percent match in each of the next three years. That is worth $260 over three years if you max out your annual contributions at $5,500, or $290 if you are over age 50 and eligible to make additional $1,000 catch-up contributions.
Fidelity is pitching this as the way to encourage higher levels of retirement savings, the way many employers make matching contributions to workers' 401(k) plans.
"When you look at what really works in the retirement space, you can see that the employer match is a major factor driving participation," says Lauren Brouhard, Fidelity Investments' senior vice president for retirement. "We wanted to take an element of what works in the workplace and bring it to the IRA."
Similar deals abound. For example, Charles Schwab Corp frequently runs promotions offering up to $2,500 for opening a new account, including rollovers from 401(k)s. Ally Bank will pay a $100 bonus for rolling between $25,000 and $50,000, and more for larger rollovers. Just do a Web search for "IRA cash bonus" to see how pervasive the practice has become.
Should you take the money and run? Perhaps, but do not let the cash distract you from more fundamental considerations.
For starters, do not roll funds out of a workplace 401(k) plan into an IRA if it charges higher fees. You should also make sure that the new provider offers the type of retirement investments you are looking for.
If you are rolling over to a mutual fund or brokerage company, the cardinal rule is to make sure your new provider does not earn back the bonus by parking you in high-cost active mutual funds or managed portfolio services.
"It's a free lunch, but not if you yield to the temptations," says Mitch Tuchman, managing director of Rebalance IRA, a wealth management firm that offers low-cost IRA portfolio management. "You have to avoid falling prey to the sirens of active management."
Instead, manage your portfolio yourself by creating a portfolio of inexpensive passive index funds or exchange traded funds, which are available through their providers' brokerage services.
To illustrate, he suggested a portfolio of four Vanguard ETFs whose fees are each below 20 basis points: Total U.S. Stock Market, Total International stocks, Total Bond Market and Total International Bond.
(The writer is a Reuters columnist. The opinions expressed are his own.)
Editing by Beth Pinsker and Lisa Von Ahn