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Author: rkmacdonald Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 74759  
Subject: Re: Why roll 401K to IRA?? Date: 7/8/2002 11:44 PM
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Author: mderting Date: 7/7/02 10:46 AM Number: 34776
I recently took a financial planning seminar. It was worthless, but the one tip I got was that I needed to transfer my 401K from a previous employer to an IRA. I just can't remember WHY????

1. Safety: In the age of Enronitis, it might be a lot safer to get your 401k money into an IRA where you can count on it being there when you retire.

2. Cost: IRA's are almost always less expensive than 401k's. 401(k) internal expenses can be very high and not easy to understand.

3. Flexibility: In an IRA, you normally have many more choices for your investments. For instance, in a typical IRA run by an online brokerage like E*Trade, you can buy or sell stocks, bonds of all flavors, money market funds, or a multitude of stock/bond mutual funds any time you want to. Or, if you mostly want to invest in low cost mutual funds, Vanguard is a great choice to put your IRA. They even have a brokerage now. also, with an IRA you can transfer a portion of your money to another IRA custodian if you want to. You might want to do this if you take early retirement in order to adjust the SEPP withdrawals.

4. Visibility: Many 401k's still do not have online portfolio monitoring, and you have to wait for quarterly statements to see how you are doing. You can usually gain significant visibility at an online brokerage IRA vs. your 401k.

Roth:
As far as a Roth is concerned, you have to roll your 401k to a traditional IRA first, and then you can convert it to a Roth. Of course, if you do convert it, you will have to pay federal income tax at your marginal rate on the entire amount that you convert. However, the decision whether or not to convert to a Roth is quite complex, involving current income level and expected retirement income level. Normally, if you are in a high tax bracket (32%+), conversion does not make sense, especially if you intend to live on a fairly low income after you retire (ie, in a low income tax bracket). Check out http://www.rothira.com/ for lots more info on Roth IRAs and conversion decision calculators.

RK
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