There are many situations where you need to figure out where to invest your money. Maybe you left a company to take a new job. Or maybe you are retiring. Do you leave your money at the old company? If not, where should it go? Or let’s say you want to fire your current brokerage firm. If you leave, where do you transfer your accounts?
Like all things related to financial planning, there isn’t an easy answer. The truth is most of the correct answers are very much based on each individual’s situation.
Let’s take the first question of leaving your money in an old company savings plan. The answer would depend on the mutual funds available in both the old employer savings plan and the new employer plan. If the old company plan has solid investments and low fees, then it is perfectly fine to leave that money in the old company plan until you need it in retirement.
Another option is to rollover that old company plan to the new company savings plan if the new company plan has better mutual fund choices.
However, let’s assume both the old and new employer savings plans aren’t that great. It would be better to rollover the old company savings plan into an IRA rather than transferring it to the not-so-great new employer plan. This is where most people get stuck because they don’t know where or how to open an IRA. So they leave their old 401(k) at their former employer.
The best place to open an IRA is at a discount brokerage firm like Vanguard, TD Ameritrade, E-Trade, Schwab, or Fidelity. I personally prefer Vanguard because of its unique corporate structure. Vanguard is a nonprofit company owned by the mutual funds it offers. This structure allows Vanguard to offer extremely low cost mutual funds. And that means investors keep more of their investment gains because it costs less to operate the mutual funds.
Regardless of which discount brokerage firm you choose, it is surprisingly easy to transfer your old employer savings plan. Don’t be fearful that it is too complicated. The key is to start the process by contacting the new brokerage firm (i.e. Vanguard, TD Ameritrade, etc.). Since you are transferring money to them, a brokerage firm will bend over backward to help you properly fill out the forms to move your accounts.
Once your accounts are transferred, it’s time to choose your investments. The simplest choice is to invest in a target date fund based on the year you plan to retire. Another option is to have a CFP® professional choose investments for you. Just be sure you understand their investment philosophy, how they are paid, and how much their services will cost you. Many investors feel it’s inappropriate to ask, but it absolutely is not.
Don’t let the process of transferring accounts intimidate you. Whether you are rolling over an old 401(k) or leaving your current firm, your new brokerage firm will make this an easy process to complete.
Steve Doster is a Certified Financial Planner™ professional providing commission-free financial advice for do-it-yourself investors. You can reach Steve at Doster Financial Planning by phone 619-688-1192 or email steve@dosterfinancialplanning.com. You can also follow Steve on Facebook, Linked In, Twitter, or blog to get more personal finance advice and tips.
