Do you have money sitting in a former employer's retirement plan? My, you must be feeling generous to your old boss.
A little-known fact about 401(k) plans is that, like every other financial service, the provider charges administrative fees. These costs used to be assumed by employers. But more and more the expenses are being shifted to plan participants. And many of those plan participants no longer work at the company.
According to the Department of Labor, we move to a new employer once every four years, leaving a trail of old 401(k) and 403(b) plans that total in the trillions of dollars. If you have money sitting in a former employer's retirement plan, it's time to take control and move your money into a self-directed IRA, completing the process that the financial services industry has dubbed the "rollover." Doing so will give you more investment options at a lower cost.
Operators are standing by! With the average 401(k) balance at $50,000, it's no wonder that companies such as Fidelity, Vanguard, and Merrill Lynch are spending big marketing bucks on prime-time rollover commercials.
To catch your eye and assets, they've improved the way rollover business is done.
- Discount brokers are making it easier than ever to roll your money over into a self-directed IRA. It can take as little as one form to complete the rollover transaction. Remember, you don't just want your old employer to simply cut you a check for your balance. The moment you touch the money, you'll pay some ugly taxes and penalties.
- To keep assets once you move them, companies are beefing up customer service. Demand a free toaster. (Just kidding.) At least consider the level of customer service (e.g., phone support, online account management, etc.) when you move your money. See if any of the special offers in our Broker Center fits your needs.
- On the other hand, don't be tempted to trade more than you would -- or buy risky investments -- just because of some perk you are offered.
- Watch out for fees. Some brokers charge an IRA maintenance fee. Again, it pays to shop around and do a side-by-side broker comparison to see how each stacks up.
- Despite your new investing power, keep contributing to your current employer's retirement plan -- especially if they offer some sort of matching program.