I went to my bank to have them help me consolidate my old 401K and roll them over to an IRA. The guy told me that they will not send the check directly into my IRA account, but I have to request the check directly from the companies and have the check sent to me, and then i bring the check to the bank. This seems scary because i'm worried sick that I'll forget and have to pay 50% tax!!
Also, what other things I should be worried about in terms of fees when I invest these funds in my IRA? i've never dealt with a bank for mutual funds or IRA before, but since i tend to forget about them and just leave them there, I figure I should have someone give me a little advice?
Should I make him help me select no load funds? Is he gonna take a % of my investment gain as commision??
If that's the way your bank operates, I would find another company to handle your IRA. It would appear they don't have the knowledge or expertise to do this. I have rolled over a 401k from two different employers, and in either case they were quite willing to forward the funds directly to the IRA. Try one of the big mutual fund companies: Vanguard, Fidelity, or TR Price.
Wow, i'm really surprised with them then... maybe i'll just do it with vanguard. But i do like it when there is a person to help me out... too bad then.
Having recently done the same thing 3 times over the past 3 years, I can tell you that many companies will not do direct roll-overs. However, it's not that difficult to handle. The sending 401K company will ask you how the check should be made out. Your IRA bank/mutual fund company can help you on exactly how they'd like to see the check addressed. This information should be the name of your IRA bank, mutual fund company, etc; name on IRA (presumably yours); and your account #. Then your 401K company sends you the check..
For example: if you are transferring from your company's 401K to a Vanguard IRA, you first have to open the Vanguard IRA, which will give you an account #. Then you tell your company to make the check payable to Vanguard Fiduciary Trust Co, For Benefit of (YOU), Vanguard acct. # XXXXX, and your address. Then you just take the check and via a simple transmittal letter, forward the check to Vanguard for deposit in your account. No taxes will be withheld because the check is not made out to you, but to your IRA (rollover) account. You do have to remember to send the check to Vanguard (or whomever), but hopefully that's something that will be a priority when you receive the check from your 401k company...
Ditto what E. Richardson posted. I also recommend either Vanguard, Fidelity, or TR Price. Have them put all the money into a money market account yielding upwards of 4.5% (at this time). Then lurk here, ask questions, learn about buying mutual funds and asset allocation. Do not buy any funds with loads; you're right there. Vanguard and Fidelity, to name two, have plenty of fine mutual funds without loads and with reasonable expenses otherwise.
Slowly back away, turn, and run, like the wind, away from this bank.
Go over to either Schwab or Fidelity and they'll help you open a rollover IRA account. Vanguard and a number of mutual fund companies can do it too, but you have the advantage of talking to a real person, not on the phone, with either Fidelity or Schwab.
Both Fidelity or Schwab has web based mutual funds allocation advice. It's all free.
You'll have to submit a form of some sort to your old employer (or the custodian of their 401k). That form should have several choices about how you want the distribution - in particular, you want to make sure that they write a check made out to the new custodian of your IRA. You need to talk to the new IRA custodian
*first*, establish the account there, get an account number, etc. The old custodian will send you the check - it may take weeks! - you personally bring that check to the new custodian. No big deal, but do make sure that it's got the right numbers - both quantity and account number.
Just read and fill out that form carefully. It should be pretty obvious which choice you want. If it isn't, the post the list of choices here and we'll help you make sure to choose the right one.
To be quite honest, I've got mine in a brokerage account rather than a bank. I had another which was a pure mutual fund account, but I like the flexibility of the brokerage account a lot better - many more investment choices and depending on the mutual fund company, full online access may or may not be available.
I don't see much reason to open an IRA at a bank. If you are looking at CDs, there are other fixed-income alternatives which are worth looking into, an brokerage accounts often offer access to CDs, too. Non-CD cash in one's IRA might as well be in a decent money-market fund (very few banks offer MMFs which are any good) or even a short-term bond fund.
(I just looked - my brokerage account has access to over
50 different CDs of different terms sold by some 15 different banks, all FDIC insured).
If you have no idea what you are doing, there's no reason not to pay someone for help. But make sure it's the kind of help you need.
(a) I highly recommend at least a moderate self education - even if you aren't going to manage your accounts much, do some reading. Try either Mutual Fund for Dummies or Personal Finance for Dummies, both by Eric Tyson. The $15 you spend on either of those books, and the three hours or so you'll need to read them, will be one of the most astoundingly profitable investments you can make.
(b) Until you know what to do with the money, there's nothing wrong with parking it in cash or a cash- equivalent (ie. a Money Market Mutual Fund or even a CD). The "parking it" option is *not* a long-term option - it's short term - just long enough to figure out what you're doing. Long long term, it'll be hard to grow your retirement stash large enough for actual retirement by leaving it sitting in cash. Several very very good mutual fund companies have excellent money-market funds and will be very happy to establish an IRA account for you to roll that cash into.
(c) if you're going to pay an advisor, don't go in blind - again, do some reading before. The word "advisor" can mean about a zillion things, some of them verygood and some of them rather unfortunate. Many "advisors" are actually just salespeople who focus on a particular product regardless of how suitable that product really is. Bank "IRA Advisors" often steer folks into the bank-branded mutual funds which carry very high loads and may be very mediocre in performance. Insurance company "advisors" may really just be pushers of VAs (which are almost entirely inappropriate for your IRA). There are some excellent articles out there on selecting an advisor, and if you go with one, make sure that the advisor is, in fact, not just a product salesman, that you do *not* buy anything you don't understand - and especially understand what the costs are and how they are paid and what it'll cost to get out of should you find that it's an innapropriate investment. Again, I'll point out Personal Finance for Dummies - it's got a great chapter at the end about selecting and hiring a professional financial planner (with warnings about some of the pitfalls and points about what good they can do you) - and if nothing else, at least it'll help you understand what it is that an advisor is telling you to do.
Here's a nice little article about finding a financial planner:
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9563 Many or most IRAs have an annual fee of some sort if the balance is below some minimum (ie. Vanguard charges a $10 annual custodial fee for IRA in a fund with less than $5000, Fidelity brokerage IRAs need at least $2500 to not have an annual fee, ETrade charges no fees at all on IRAs though if you have less than $25000, they will charge a fee if you want paper statements and such - online access is free regardless).
If you have more than a small sum of money, you should't be paying an IRA custodial or account fees. All mutual funds have *expenses* - everyone pays those - which are a percentage of the balance. Some mutual funds have sales fees ("loads") which get paid to the person or organization selling you the fund - which may be how that person is compensated for helping you choose it. If nobody helps you choose the fund, don't pay a load. And if someone tells you a fund is "no-load" make sure that it is - there are forms of loads which are rather hidden (ie. class B shares).
Don't be overwhelmed. There are a lot of potential snags on this road. Take a breath. It shouldn't be scary and it doesn't have to be. Ask specific questions here.
And don't do anything you're not pretty certain of. Take your time. Roll that money into a reasonable and safe (and no cost to get out of!) alternative (ie. a money market fund) until you have a better idea what to do with it.
Above all, ask questions. Ask the bank. Ask the advisor. Ask here! For more specific suggestions, the more information about your situation you can post, the better. If you're not comfortable coming forward with your details here (this is a public forum, after all), try to put the questions in as much context as you can - things like risk tolerance, how big a portion of your portfolio/assets you're talking about, what the money's to be used for, how far away that goal is, etc.
Having done the same thing twice in the last five years, I can tell you that many companies both large and small will do direct rollovers. (I dunno, do three companies and two companies constitute "many"?) If your company won't (via the custodian they have hired to handle the accounts), then all the more reason why it's a good thing you're not working there anymore!
There may be some requirements for a spousal sign-off on the rollover if married. I'm not sure if this depends on state law or what.
How do you open the IRA without putting any money into it?
That's not hard. The broker/fundco opens the account with a zero balance and tells you the account number. You can then provide that account number where needed on any rollover forms or whatever.
I also think some confusions has developed over exactly what a "direct rollover" means. Tax-wide, a "direct rollover" simply means that you, the individual, never get your grubby hands on the money. I think some people in this thread are interpreting "direct rollover" to mean the 401(k) wires/ACATs the funds directly to the receiving IRA or sends a check directly to the receiving IRA. I can definitely believe that some 401(k) plans won't support that.
However (as one person has mentioned), the 401(k) plan can send a physical check to you, and as long as the check is made out something like "The IRA Custodian, FBO John Doe" (you might also have them list the account number if you know it), that still counts as a direct rollover even though a paper check is sent to you (because you can't deposit it). You then bring the check to your IRA custodian and deposit it in your IRA coded as a rollover. Done. I've done this many times because I am cynical (realistic? :) about a check being sent from the 401(k) straight to the IRA custodian getting lost somewhere.
I think the law requires spousal unit signatures for any move out of a
401(k). My rollover was same as OPs, the company I was leaving had the requirement of sending me the check made out something like "Pay to Charles Schwab for further credit to the IRA #xxxx of JoeTaxpayer" or something similar. It struck me as odd that they did it this way, but it worked. Schwab was accommodating of the process, setting up a zero balance IRA to accept the money. In hindsight, I could have put it in the same IRA I had been making non-deductible deposits to, but I preferred to track this money separately, and the family balance is enough to avoid fees on whatever smaller accounts I might want.
I took the opportunity to warn co-workers in the same situation, so they'd be less surprised at the process.
I'm very confused too. I set up an appointment with the financial guy, he took all my info, made copies and said we'll have to be on a conference call and to get the money roll over. He specifically told me that those 3 checks (from my 3 diff 401K account) will have to come directly to me, and then I have to physically bring them to the bank.
I'll spill it here, the bank is HSBC. I have an account with them to take advantage of the 6% return until april 30th. I thought keeping everything in one place would be a bit easier for me to keep track. But now I'm a bit fishy about them.
maybe I should leave my money (the 6% thing) till end of april and bring my money somewhere else?
Would you go to an orthodontist to have your eyes checked?
I'm GENERALIZING, but many of the banks I have encountered are not the most educated when it comes to other than ordinary financial matters.
Did you know that many banks REQUIRE that someone at each branch be licensed to sell securities and investments, even if no one is truly qualified? They tried to make one of my family members get licensed simply because no one else in the bank wanted to do it. Is that who you want managing your money? The person that was forced to learn just enough to pass the test.
I can't count the number of times I've heard a banker say "put it in one of our CDs" without asking a single suitability question. That is sickening! How can one put a puzzle together if they don't have all of the pieces?
Learn enough to handle your own investing and/or seek someone who is truly qualified to handle your financial matters. That may be yourself, a brokerage firm, and CFP, or a combination of the aforementioned.
Since my other post was a little bit of an anti-bank rant I will at least say this:
Ask the bank's "advisor" his credentials, experience, fee structure, etc etc.
The fact that he left things so unclear and did such a poor job of explaining makes me leary of him to start with, but you may decide to give him the benefit of the doubt anyway.
I was in a bank and overheard someone discussing a T-bill vs a CD (with a customer). The T-bill advantage was the non-tax status for state income tax, not a huge amount, but a 5% tax on 5% CD is .25%. The Banker emphasized that a T-bill has no FDIC insurance and 'will fluctuate in value'. The penalty on the CD was 'only' 3 months interest. Now, I suppose that sticking to the letter of the law, there is no FDIC insurance on T-bills, but what series of events could ever come to pass where T-bills are defaulting, yet CDs are safe? And yes, when rates shoot up, it's possible for a few months the present value of the T-bill will drop by more than 3 months value when compared to the CD, but this still smells like bad fish to me, and nauseate me just the same. JOE
Exactly, I just did this with E-Trade in order to rollover an old 401(k).
Indeed. E-Trade actually recommended that I have the check sent to me instead of going directly from my 401(k) custodian to E-Trade. Apparently E-Trade occasionally receives checks from custodians without sufficient paperwork to figure out where they are supposed to be deposited, leading to the lost deposit syndrome. I did as E-Trade suggested and everything worked out great, including correct paperwork and correct information on the check.
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