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Sunday, Oct 1, 2023

Chamberlain on Money–Options for Your 401(k) When You Switch Jobs

Dear George: I’m leaving a job and want to roll over my 401(k) plan. Should I put the money into a regular Individual Retirement Account or a Roth IRA?

, Janet, San Diego

Dear Janet: You have several options for your retirement money and rolling it into an IRA is just one of them.

First, consider leaving the funds where they are. If you have more than $5,000 in the 401(k) plan you can keep it with the current custodian. If the investment options have treated you well, then it may make sense to stay with the plan.

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Second, if your new employer has an attractive 401(k) plan you may want to consider moving the money there. This will allow you to continue the tax-deferred status of your contributions and the growth they have generated. Be sure to make sure that the fund is well administered and that the expenses are reasonable. The Department of Labor (www.dol.gov) has information on understanding the costs associated with employee-sponsored retirement plans.

The third option is to roll the money into an IRA. This, of course, gives you a greater number of investment choices and allows you more flexibility in making decisions about how the money is put to use. Again, pay attention to fees and expenses.

If you decide to transfer the money to an IRA, you have no choice but to go directly to a traditional, tax-deferred account. Once the money has been switched you can then consider making another move into a Roth IRA. It is not possible to go directly from your 401(k) to a Roth IRA.

Of course, there are a number of things to remember before you make that final switch. While the tax-free growth provision of a Roth IRA is hard to beat for your $2,000 annual contribution, it may be the right place for your rollover money.

Remember, you will have to pay taxes on all of the deferred growth that has been accumulated in your 401(k) plan and the rollover IRA. Let’s say your account has grown to $100,000 and all of the money is tax-deferred. Uncle Sam will want you to pay up when you switch to the Roth. That means a tax bill of around $30,000. You also have to pay that bill with money outside of the account. If you pay it with assets in the account, you may also get hit with early withdrawal penalties.

I would strongly suggest that you explore all of your options and discuss matters with a tax professional before moving the money.

Dear George: Where can I get more information about starting an investment club?

, Cliff, Scripps Ranch

Dear Cliff: For nearly 50 years the National Association of Investors Corporation has been helping people across the country help turn investing into a team sport. Fortunately, the NAIC has an excellent council here in San Diego to help people get started.

Investment clubs are a great way to learn the process for buying stocks. Following a simple set of rules , invest in growth companies, invest regularly, and reinvest all dividends , tens of thousands of investors have got their start through investment clubs.

The average club has about 20 members and the average monthly contribution is $25. The club members all share the responsibility for researching individual stocks, and decisions about where to invest are done democratically.

A meeting sponsored by the local council of the NAIC will be held Monday, March 27, at the Rancho Bernardo Library, 17110 Bernardo Center Dive. The meeting begins at 6 p.m. and is free.

You can also get information about investment clubs on the Internet at (www.better-investing.org).

–George Chamberlin

Chamberlin is the host of “Money in the Morning,” heard weekdays from 9 a.m. to noon on Ksdo.com A/M 1130. Send to P.O. Box 1969, Carlsbad, CA 92018, or E-mail him at (george@moneyinthemorning.com).


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