Money Management & Retirement Planning Advice by Barry Unterbrink, Chartered Retirement Planning Counselor

Thursday, February 28, 2008

Retirement Account Transfers - Considerations

Should I Stay or Should I Go (with my retirement account)?

The subject of retirement plan portability and the decision employees / investors must consider have been on my mind recently, having fielded a few questions from prospects and clients so far this year. Let’s examine the benefits and pitfalls of moving retirement money to an I.R.A.

Many defined contribution (DC) retirement plans, including private and public sector employees, can be moved or rolled over upon an employee leaving or terminating their employment relationship. Some plans are even more flexible and allow you to move some or all of you money while still working through in-service arrangements. New contributions, as an example, can be directed to another custodian and keep the amounts deferred from being taxed when earned. The human resource or benefit department should be able to explain all of the options, but you have to ask. Federal legislation and I.R.S. rules dictate the procedures to follow by the custodian of the account in facilitating the transfer of these funds to another financial institution. These retirement plans could include 401(k), 403(b), 457, TSA, TIAA/CREF, etc.

What are the factors to consider in transferring your retirement account to an I.R.A?
On the assumed advantages side of the ledger:


More investment choices.
Better strategies to achieve longer term goals
Option to convert to a ROTH IRA in later years.
Ability to withdraw funds for 1st time home purchase or to cover medical expenses.
More options for beneficiary selection and continued tax deferral.

Advantages of staying put:
Familiarity with existing plan choices
Generally happy with the performance
Lower fees and expenses than outside choices
Favored tax treatment of company stock owned in your plan.

I favor a balanced approach. Keep some money in the employer plan, and rollover some money to an I.R.A. Why? Neither place offers all the best options usually. Unless you have a heads up on real shenanigans going on (the Enron debacle comes to mind in which employee retirement accounts were frozen and not permitted to move their investments until it was too late), most employer DC plans offer a decent mix of choices: say a couple of stock mutual funds, perhaps an index fund, a bond mutual fund, and a money market fund. In recent years, international fund choices have appeared as well. It’s pretty hard to mess up buying and holding these types of typical fund investments. If you want more “action” buying stocks, bonds, mutual funds that your ex-employer does not offer, then you may wish to venture toward an advisor who knows this area and can help educate you along the way.

To espouse on the above bulleted list, one apparent drawback to moving is that of increased risk. Once you move from the DC “fund” choices to individual stocks and bonds, risk goes up. I’m sure you’ve heard stories after 9/11 and into 2002 of employees losing 40-50% of more of their retirement balances due to the nasty bear market and poor investments. From my experience, most of the really bad losses were not in company sponsored DC plans, but were in Individual-directed I.R.A. accounts. That’s not an absolute statement because some plans did hold funds with a big technology basis (which fell the most), but employer plans I managed then were careful not to give the workers many risky choices; i.e. not enough rope to hang themselves.


Lastly, you could find yourself mulling non-financial reasons for moving or staying put. Did you like your job, or were you close to co-workers that you’ll miss? Was retirement planning part of your conversations with co-workers? These may be intangible reasons to stay connected to the company by way of your retirement plan.

Enjoy your leap year day and weekend!

Barry Unterbrink
Retirement Planning Counselor

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