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Author: Macnab Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 75650  
Subject: trad IRA vs rollover IRA for 401 k consolidation Date: 11/20/2003 7:58 PM
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Hi all,
New fool here, just joined. I've already learned a bunch from my trial month so I signed up.

I'm about to consolidate/roll over my 4 pre-existing 401k's from previous jobs into a single IRA. Based on recommendations here at tmf, I'm looking to have the account set up at BrownCo. Filling out the forms I notice the choice of a traditional IRA, which was my original intention, and I also see a "Rollover IRA" listed.

What's a Rollover IRA mean in this case? and how is it different from a traditional IRA? (I've had some trouble searching for this answer on my own, since I always find info on roth vs. traditional and I already know that distinction.)

Also, I'd be glad to discuss my chice of BrownCo as a place to have the IRA. I plan to make very strighforward "Coffeehouse" investment choices along the lines of low-cost index funds such as Vanguard S&P 500 and total market index.

Thanks for any help,
Dan
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Author: FuskieFool Big funky green star, 20000 posts Top Favorite Fools Old School Fool Ticker Guide SC1 Red Winner of the 2010 Rule Breakers Challenge Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 37913 of 75650
Subject: Re: trad IRA vs rollover IRA for 401 k consolida Date: 11/20/2003 8:13 PM
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What's a Rollover IRA mean in this case? and how is it different from a traditional IRA? (I've had some trouble searching for this answer on my own, since I always find info on roth vs. traditional and I already know that distinction.)

There is no real difference. In the case of a RTIRA, you may be able to later roll it back into a new employer's 401k.

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Author: wcfenton Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 37941 of 75650
Subject: Re: trad IRA vs rollover IRA for 401 k consolida Date: 11/21/2003 2:06 PM
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Dan...

What's a Rollover IRA mean in this case? and how is it different from a traditional IRA? (I've had some trouble searching for this answer on my own, since I always find info on roth vs. traditional and I already know that distinction.)

I believe this site's answer is pretty thorough and should answer your Rollover IRA vs Traditional IRA questions:

http://www.buyandhold.com/bh/en/retirement/qa/rollover_ira.html

Also, I'd be glad to discuss my chice of BrownCo as a place to have the IRA. I plan to make very strighforward "Coffeehouse" investment choices along the lines of low-cost index funds such as Vanguard S&P 500 and total market index.



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Author: wcfenton Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 37943 of 75650
Subject: Re: trad IRA vs rollover IRA for 401 k consolida Date: 11/21/2003 2:27 PM
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Sorry Dan...I hit the submit block rather then the edit block.

Also, I'd be glad to discuss my chice of BrownCo as a place to have the IRA. I plan to make very strighforward "Coffeehouse" investment choices along the lines of low-cost index funds such as Vanguard S&P 500 and total market index.

An example of the "Coffee House" Portfolio:

http://www.marketwatch.com/news/yhoo/story.asp?source=blq/yhoo&siteid=yhoo&dist=yhoo&guid=%7B13F04CB4%2D020D%2D4170%2D8150%2D9CEDAD91A808%7D

The main two questions that come to mind are:

1) Why not cut out the middleman and invest directly through Vanguard being most (if not all) of the funds are Vanguard funds?

2) Are you ready to manage, rebalance, and pay the fees of seven funds on a regular (say yearly) basis? Wouldn't two or three funds work?

It's hard to offer up too much in the way of possibilities not knowing how far away from retirement you are and how much experience you have with investing.

Good luck,
Bill



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Author: johnb1662 Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 37957 of 75650
Subject: Re: trad IRA vs rollover IRA for 401 k consolida Date: 11/22/2003 8:24 PM
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> What's a Rollover IRA mean in this case? and how is it different from
> a traditional IRA? (I've had some trouble searching for this answer on
> my own, since I always find info on roth vs. traditional and I already
> know that distinction.)


A "rollover" is a traditional IRA funded with 401(k) funds.

Be sure to do a "trustee to trustee" transfer. If you take posession of the money you will create taxable income which could have been avoided. Ask the "receiving" organization for help in arranging this.

When I did this after my retirement the company plan administrator mailed a check to me for the value of my 401(k) payable "For the benefit of ..." not payable to me as an individual. I sent the check to the no load fund group I wanted to use as the initial deposit in my account.

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Author: Macnab Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 37976 of 75650
Subject: Re: trad IRA vs rollover IRA for 401 k consolida Date: 11/24/2003 1:56 PM
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Bill,

Thanks for your insightful replies and links.

Responses to your questions:

1. I'm looking at BrownCo (and Scottrade) for the 401k rollover account because I am at the same time selecting a place to have a post-tax account. My reasoning is that it would be convenient to have both accts at the same location.
On the other hand, if having the rollover account at BrownCo is going to increase my ownership costs then it worth considering going directly to Vanguard. To think further on your point I don't plan to be an active trader with my post-tax money either, and perhaps I might as well do all my business at Vanguard. (?)

2. The coffeehouse portfolio you link to is the seven-fund version of the portfolio. The book discusses the simplest version being a single "total market index" fund. Between the one-fund and seven-fund is the three-fund which was my original intention. I plan to start with a three-fund portfolio. However looking at the seven-fund portfolio, it doesn't look intimidating, but don't have a set of target balace ratios yet for a seven-fund portfolio so I'm not ready to go there. In fact I don't think the book prescribes a balance for the seven-fund portfolio. I'd have to do more research on a proper balance before going to seven funds.

Lastly, I'm 33 and have three kids, a wife, a house, and a single income. I don't know how one measures investment experience. Number of trades? Money gained? Money lost? I've been thinking about investing since I got my first job with a 401k fund and stock options about ten years ago. However I have not dived into the equities market and been an active trader, I've been looking for a strategy that I can be confident in. So at this point I think I have found a sound strategy for at least my retirement money, but as always I'm open to debate and opinions and I really appreciate your questions.

Thanks,
Dan


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Author: wcfenton Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 37978 of 75650
Subject: Re: trad IRA vs rollover IRA for 401 k consolida Date: 11/24/2003 6:52 PM
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Dan...

1. I'm looking at BrownCo (and Scottrade) for the 401k rollover account because I am at the same time selecting a place to have a post-tax account. My reasoning is that it would be convenient to have both accts at the same location.
On the other hand, if having the rollover account at BrownCo is going to increase my ownership costs then it worth considering going directly to Vanguard. To think further on your point I don't plan to be an active trader with my post-tax money either, and perhaps I might as well do all my business at Vanguard. (?)


Brown or Scott would probably be an acceptable alternative to Vanguard for your rollover account. I just don't have any personal experience with either. I got my daughter started with Vanguard and she is very satisfied with them. Also, there is nothing wrong with shopping around a bit for the best discount broker for investments other than your core account. Nothing says that everything has to be consolidated with one company. As a matter of fact, if you don't mind the weekly trading policy of ShareBuilder ($4.00 buys), you can save a bunch.

2. The coffeehouse portfolio you link to is the seven-fund version of the portfolio. The book discusses the simplest version being a single "total market index" fund. Between the one-fund and seven-fund is the three-fund which was my original intention. I plan to start with a three-fund portfolio. However looking at the seven-fund portfolio, it doesn't look intimidating, but don't have a set of target balace ratios yet for a seven-fund portfolio so I'm not ready to go there. In fact I don't think the book prescribes a balance for the seven-fund portfolio. I'd have to do more research on a proper balance before going to seven funds.

The Coffeehouse portfolio is fine in most of it's iterations, but I have never heard of one with less than 6-7 funds. Also, it favors more of a "Slice & Dice" type of investing technique - which I don't care too much for. It's kinda like trying to cover ALL the bases (Over diversification in my mind). Have you looked at the "Couch Potato" Portfolio? That one is only two funds and includes either the "S&P 500" Index Fund or the newer "Total Stock Market" Index Fund and the "Total Bond Market" Index Fund in varying proportions. The variance depends on either an investor's tolerance to risk or the number of years left to retirement.

http://www.investopedia.com/articles/mutualfund/03/043003.asp

Again...if you don't want to be bothered with rebalancing periodically - as with the Couch Potato or Coffee House portfolios, Vanguard has a number of possibilities to choose from. My daughter didn't want anything more then the very least amount of involvement with her Roth IRA and she didn't want much of any risk, so I got her started with the Vanguard "Balanced Index Fund" (VBINX) which is a 60/40 split between the Total Stock Market Index Fund (VTSMX) and the Total Bond Market Index Fund (VBMFX). It automatically rebalances itself. So...since putting a name on everything has been very popular...I call this the "Feed it and Forget it" approach.

Lastly, I'm 33 and have three kids, a wife, a house, and a single income. I don't know how one measures investment experience. Number of trades? Money gained? Money lost? I've been thinking about investing since I got my first job with a 401k fund and stock options about ten years ago. However I have not dived into the equities market and been an active trader, I've been looking for a strategy that I can be confident in. So at this point I think I have found a sound strategy for at least my retirement money, but as always I'm open to debate and opinions and I really appreciate your questions.

How do you measure investment experience? Great question, however, I don't really have a definitive answer. You probably already have more experience then most. Does jumping into the market with both feet equate to experience? Absolutely! Does participating in your company's 401k equate to experience? Again...absolutely! Does reading all of the appropriate books about investment techniques/options equate to experience? I think so. How about spending an appropriate amount of time learning how to research a company to determine it's investment possibilities? Yup!

All of these experiences...and time...must determine how capable an investor we are - I think. There are many variables that will make us doubt just how experienced we think we are, but...there are no guarantees!

Best regards,
Bill




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