What to do with your 401(k) or 403(b) if you leave your job – nasdaq.com multinational debit card owned by mastercard

I was laid off from my employer during the latest downsizing. I

Was wondering whether to leave my 401(k) where it is or roll it

Into an IRA?

The host was emphatic. The caller should not leave his 401(k)

With his former employer. Period.

So far so good. I completely agree. You want to roll your

401(k), 403(b) or SIMPLE over to an individual retirement plan

(IRA) – either roth or traditional – as soon as you leave your


Ron said, I’ve always heard that. Can you tell me why that


The host then explained that you are in danger of losing your

401(k) if your former employer goes out of business. The radio show

Host gave the right answer, but then he gave the wrong reason!

Your employer – current or former – is not the custodian of your

401(k) account.Multinational debit card owned by mastercard

the employer doesn’t hold the money – a third party

Does. So the concern isn’t that you will lose your 401(k) if former

Employer goes bankrupt. All of your contributions and vested

Employer contributions are safe.

So you may be thinking to yourself, but what if the bank,

Brokerage or insurance company who has custody of my 401(k) money

Goes under – like bear stearns and lehman did?

Rest easy. The money you have invested in your employer

Sponsored retirement plan, or any brokerage account for that

Matter, is held in completely separate sub-accounts. It cannot be

Co-mingled with other funds, it is shielded from creditors and the

Custodian can’t use your money to pay its bills or debt under any


In the off chance your plan custodian did go under, your

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Company, which is called the plan sponsor, will either transfer the

Plan to another custodian, or more likely, the custodian will be

Taken over and your company will become a client of that new


So if bankruptcy isn’t the issue, why is it so important to roll

Your 401(k) or 403(b) to an IRA when you leave your employer?

The primary benefit of the IRA, over the 401(k), 403(b) or

SIMPLE, is that you have more investment alternatives in an IRA. In

A 401(k), unless you are lucky enough to have a self-directed

Brokerage window, you are probably limited to the mutual funds

Offered by your plan administrator. In an IRA, you can buy and sell

The entire universe of investment alternatives – including all

Stocks, bonds, mutual funds, options, real estate, and even

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Privately held companies.

While that is the most important reason to roll your 401(k) over

Into an IRA when you leave, there are others.

If invested properly, your fees will probably be lower in an IRA

Than a 401(k). Fees are very important for three reasons: 1)

Reducing fees is risk free return – it may be the only free lunch

In investing; 2) reducing fees leaves more money in your pocket to

Compound over time; and 3) studies show the one thing most

Correlated with performance, over time, is not the fund manager,

The sector, the asset class or the historical performance, but low


As a general rule, fees are inversely correlated to portfolio

Performance – the higher the fees, the worse the performance. The

Lower the fees, the better the performance – which is, of course, a

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Very practical reason why you should learn to be your own money


(NOTE: snider advisors offers a free online course, called how

To turn your 401(k) into a million dollar nestegg. The nine part

Course is designed to arm you with the knowledge and step-by-step

Instructions needed to make the most out of your employer-sponsored

Defined contribution plan. The goal is to give your plan the

Highest probability, while you have it, of someday being able to

Produce sufficient income for you to live comfortably in


Another reason to move from a 401(k) to IRA, is easier access to

Your money, although I’m not sure this is such a good thing. If you

Want to rob your retirement account, you don’t have to ask for

Permission, nor is there any bureaucratic paperwork.Multinational debit card owned by mastercard you have a

Thousand miles of rope to hang yourself with.

There are estate planning benefits as well. While the rules have

Changed in recent years, allowing 401(k) plans to be stretched by

Your beneficiaries, it is still up to each individual plan sponsor

To write that into the plan document. Some have and some haven’t.

An IRA custodian that doesn’t allow for a stretch after your death

Is, in my experience, rare. Finally, you can split iras between

Multiple beneficiaries and iras are easier to allocate when you

Have non-spousal heirs.

A transfer of your 401(k), 403(b) or SIMPLE to an IRA is a

Non-taxable event, so long as you do it properly. There should be

No taxes, fees, or penalties.

While you are employed, you have to max out your employer

Sponsored retirement plan if you can.Multinational debit card owned by mastercard at a minimum, you should

Contribute enough to get the full employer match, if there is one.

But if there is a silver lining to losing your job, being able to

Self-direct your retirement funds is one.

Bottom line: whenever you leave an employer – either voluntarily

Or not – get that money rolled over to an IRA as soon as you can.

Never leave your 401(k) with your old employer, and even worse,

Never ever roll your old 401(k) money into your new employer’s

Plan, when you are lucky enough to find a new job.

No statement in this article should be construed as a

Recommendation to buy or sell a security or to provide investment

Advice unless specifically stated as such. All investments involve

Risk including possible loss of principal.