For retirees or those switching jobs, what to do with a former employer’s 401(k) account is a common question.
Certified financial planner Kimberly Foss, of Empyrion Wealth Management in Roseville, Calif., offers some advice on the subject.
Q: I am 61 and have quit working. I have a 401(k) from my company. How and where do I decide to roll it over for my best retirement planning?
A: For most investors, rolling your 401(k) retirement funds into an IRA offers the most investment options.
A direct 401(k) rollover is simply a transfer of assets from your current account’s trustee or custodian to the trustee or custodian of another account (a “trustee-to-trustee transfer”). It’s an easy process that allows your retirement savings to remain tax-deferred and avoids penalties.
By completing the necessary paperwork, your 401(k) funds move directly from your old employer’s retirement plan to your new IRA. As long as you follow the federal rollover rules, no federal income tax or penalties will be charged.
There are many investment options, but the most common rollover choices are mutual fund companies and brokerage accounts. It depends on the investment choices you want to make.
For example, if you plan to buy all no-load funds, such as Vanguard funds, opening an IRA account with that institution would be the most cost-efficient route.
If you want to invest your IRA monies in a variety of stocks, mutual funds or bonds, then a brokerage such as Fidelity or Schwab might be a better choice.
Aligning yourself with an adviser also can be helpful, so you do not have to navigate the markets alone.