Roll Me Over

The other day I received a letter from one of my former employers announcing they were getting ready to change 401k management companies and would be moving my account to a different investment firm. Now, as luck would have it, I had TWO former employers who had chosen the same company so all my 401k money was with the same investment firm. I DIDN'T want the money to be moved...what could I do?!?!?!

Well, I started thinking. Since all the money I had in these two 401k account were with former employers, they would no longer be making any contributions. So, why should I keep the money in their plans. If only there was a way for me to keep the money in my own account, I could avoid a lot of hassle. That's when I remembered about the different types of Individual Retirement Accounts (IRAs).

There are two types of accounts. A Traditional IRA allows contributions on a pre-tax basis, or in other words, you contribute money without paying income tax on the contributions. Now, any gain in value of the account is not taxed but you do have to pay income taxes on the money when you withdraw it.

The other type of is a Roth IRA. Contributions to this account are made after income taxes. This is very similar to any other investment in stocks, bonds, mutual funds, etc. that you would do with a standard Brokerage account. All the gains in this account are not taxed either AND you do NOT pay any income taxes when you withdraw the money since your income taxes were paid before you invested the money.

Which account works most like the 401k?. That's right; the Traditional account. When you contribute to your 401k, the money is taken out from your check before your income taxes are deducted.

So the answer to my dilemma was simple. I opened a Traditional IRA with my current investment firm and then did a rollover of all the money in BOTH my accounts. They did what is called a transfer-in-kind which means all the stocks, mutual funds, etc. that I have in my old accounts moved directly into my personal IRA without any change in the quantity or the type of investment and without any fee!

Now all that money is secure in my name and I can decide how to invest it and where to go from here. Most importantly to me, I have control of who is going to be my investment company.

Take some time to learn about the different kind of investment accounts that are available to you and how they work. Because many years ago I had spent time "doing my homework" I was able to avoid changing financial institutions and insure my money stayed where I wanted it to stay!