Tuesday, June 5, 2012

401k Rollover To Ira

Some Questions To Think About

You are changing jobs and about to make a 401k rollover to IRA, of the traditional type. Before you make a 401k rollover to an IRA, let me ask you some questions and maybe give you a few things to think about.

Have you been happy with your returns over the last few years? Most 401ks are dependent on mutual funds and the volatile stock market. So, many people have not been happy to see their quarterly statements, lately.

They Could Have Been Smiling

If they had taken a 401k rollover to IRA, of the self-directed or self-managed type, they could have been smiling. You see, self-directing offers more investment options than the typical stocks, bonds and bank CDs. I am sure that somewhere along the line, someone told you to diversify, but they might have only meant to invest in a variety of different stock options, while keeping a little money in the safety of a bank CD or a government bond.

You Can Diversify

If you make a 401k rollover to an IRA that is truly self-directed, you can truly diversify. Sure, you can keep some stock market shares, particularly if you hold some of the blue-chips. But, you might also want to consider other, more unique investment options.

These days, if we want to secure our retirement, we need some more unique approaches. The average rate of return is no more than 5% per year. Do you know what the inflation rate for the next 20 years is expected to be? 5%.

Don't Continue On The Same Path

If you make a 401k rollover to an IRA and you continue to earn only 5%, then your account value really will not have grown in 20 years, because the buying power will be exactly the same. Of course, compounding interest can get you a little bit ahead in this numbers game, but imagine if you could earn 10, 20 30 percent or more over the next twenty years.

The Hidden Real Estate Market

If you make a 401k rollover to IRA and invest in real estate, you can easily see those kinds of returns. There is one sector of the housing market that is doing quite well, right now. You should learn more about this hidden real estate market before you make a 401k rollover to an IRA, if you want to be wealthy in 20 years, that is.

Here's a little more advice. Make sure that your 401k rollover to IRA is a direct-rollover or transfer. There's less paperwork involved and the transaction is not reported to the IRS.

The 60 Day Time Limit

A 401k rollover to an IRA that involves you as the middle man requires that all assets be liquidated and you only have 60 days to find a new custodial company. If you make a mistake, you could end up paying heavy taxes and penalties at the year's end.

You also might want to consider a 401k rollover to IRA of the Roth type. That way, you could accumulate tax-free wealth over the next 20 years and regardless of how much you took per year after retirement, you would never pay taxes. It's something to consider, at least.

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