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Subject:  Re: Combine accounts? Date:  1/9/1998  9:09 AM
Author:  TMFPixy Number:  1144 of 87979

Greetings, Orangeblood, and welcome.

<<I have read before it is not wise to rollover a 401(k) account into an IRA.... just in case one needs to put that money back into a 401(k) in the future.
But since I am able to self direct the new combined IRA account any way I wish, what advantage would there be to keeping the funds separate?>>

First, what you heard is incorrect. It's not unwise to roll a 401K to an IRA, it's sometimes considered unwise to add any other money from any other source after the 401K has been rolled to an IRA. That's because the 401k rollover money then loses it's eligibility for a future transfer to another employer's qualified retirement plan that accepts such transfers. So by keeping the IRA "pure, you still have the ability to self-direct your account investments while preserving the right to transfer that account in its entirety to a new employer's plan (assuming it accepts old plan money) should you desire. In my mind, that's the sole advantage to keeping the money separate. To Fools, it's not a big issue because we believe we can do much better than the vast majority of employer plans can anyway.

You will also often hear folks say that preserving this eligiblity may be handy if you ever have to borrow money. You can't do that in an IRA, but you can with many 401k plans. Put the money in the 401k, and you'll have that capability. I don't believe in ever borrowing from retirement plans, so that's not a strong argument from my viewpoint. Those loans must be repaid within five years anyway, and they suffer from a severe interruption in compounding while the loan is outstanding. It's just not a good policy to borrow that way except to forestall bankruptcy.

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