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Author: Mark0Young Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 75820  
Subject: Re: 'Uknown' money & what to do Date: 5/31/2004 4:09 PM
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As I see it, I have 2 options, a rollover IRA (I dont qualify for the Roth because of my income) and rolling it over to my current 401k, which doesnt particularly excite me (I dont think the investment portfolio is all that special).

Anyone have any suggestions on what to do?


I would be inclined to go with the "Rollover IRA".

$6,177 wouldn't allow you to diversify among a bunch of investments without being eaten up in commissions, so a mutual fund or two may be more suitable. Where you hold that "Rollover IRA" actually depends on what type of investments or instruments you would be using. For mutual funds, typical choices of where to have the "Rollover IRA" are either directly with the fund family (e.g., at Vanguard or TIAA-CREF) or at a discount broker (e.g., Scottrade). My personal suggestion is that if you are going to hold one or more funds from just one fund family, and the fund family doesn't have extra expenses that a brokerage would eliminate, just keep the Rollover IRA at the fund family and eliminate extra middlemen. But if you plan on holding funds from multiple fund families, holding the "Rollover IRA" at a discount broker and within that IRA investing in the desired funds may make more sense.

The advantages of a "Rollover IRA" include: you can generally pick just about any investment that makes sense for you and at a reasonable price instead of being stuck with what your former employer had chosen, you wouldn't be subject to "blackout periods" if your former employer changes plans or goes bankrupt, and you can do just about anything with that "Rollover IRA" as you could do with a Traditional IRA, including converting it to Roth or using up to $10,000 lifetime limit from the IRA for a "first time" home purchase (exempt from penalty if used for qualified home purchase expenses--see IRS Publication 590--but not exempt from income taxes paid on the removal of funds from the "Rollover IRA", assuming that the 401(k) it came from was funded from pre-tax monies).

Like mentioned by another Fool, when you do a "Rollover IRA", do it as a "custodian to custodian transfer" so that you don't have to worry about 20% withholding or the 60-day clock from the time you receive the check until you get the check deposited at the IRA custodian. Typically the best place to start is the place where you want to hold the "Rollover IRA" (e.g., Scottrade, Vanguard, TIAA-CREF, whoever you want as the custodian) and they can start the process. There may be additional paperwork to fill out, but that should be communicated to you once the process has started.

As far as what to have the money invested in, I am partial towards having a preponderance of equities for long-term investments because, for the typical investor, equities have had the best long-term returns and thus provide the best chance of having enough growth to meet one's retirement needs. My domestic equities exposure are in index funds (Vanguard Total Stock Market in taxable account, CREF Equity Index in my 403(b)). About 75% of my investment are equities, roughly 15% bonds, 10% real estate. But if I were about 30 years younger, I would probably have a higher percentage in equities.

However, you have to decide on your own investment strategy. Morningstar has a "university" with "classes" (web pages available on the web) on investing, and Vanguard has "planning" and "plain talk" series of articles.

Here on Fool there is an article on IRAs--if you haven't read through it, it may be well worth it: "All About IRAs" <http://www.fool.com/money/allaboutiras/allaboutiras.htm?REF=PRMPIN>

See also: The "13 Steps to Investing Foolishly" <http://www.fool.com/school/13steps/13steps.htm?REF=PRMPIN>
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