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MailTribune.com
  • Research before rolling 401(k) into IRA

  • Question: What do you think of ETFs? Also, what is your opinion of moving significant funds — one-third to one-half of one's 401(k) — from an institutional account to a retail account in an IRA as a trustee-to-trustee transfer six months before one is about to retire?
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  • Question: What do you think of ETFs? Also, what is your opinion of moving significant funds — one-third to one-half of one's 401(k) — from an institutional account to a retail account in an IRA as a trustee-to-trustee transfer six months before one is about to retire?
    Answer: You're asking about the suitcases you'll bring on your retirement journey without mentioning the contents.
    Exchange-traded funds are simply baskets of securities — stocks, bonds, commodities — wrapped together in a relatively low-cost package.
    And transferring retirement funds from an employer 401(k) plan to a retail individual retirement account can be good or bad, depending on what's inside them. Great workplace plans can offer access to institutional money managers at below-retail cost, but discount retail IRAs can handily trounce mediocre plans.
    "In the vast majority of cases, people are better off rolling a 401(k) into an IRA," said Mike Alfred, co-founder of BrightScope, an online 401(k) rating site.
    His rationale: Low-cost index mutual funds available to retail investors are cheaper than all but the biggest plans' funds, and IRA holders aren't paying the record-keeping costs of a 401(k) plan.
    On the other hand, 401(k) plans have arguably more fiduciary protections, and many are beginning to offer some innovative distribution options for retirement, said J. Spencer Williams, president and chief executive officer for Retirement Clearinghouse.
    If you're planning to roll a portion into a retail IRA — assuming your plan allows this before retirement — you might consider using the workplace plan to house investments you can't necessarily get in the retail market, such as a good stable value fund and lower-cost real estate investment trusts, he said.
    Q: When I die, do my children have to go through a funeral home to have me cremated?
    A: State laws vary regarding requiring funeral directors to be involved in the process, but many cremation services have licensed funeral directors on staff, sources said.
    If you anticipate any disagreement among relatives about this after you're gone, consider working with an attorney to create a written directive that spells out your wishes for how your survivors dispose of your remains.
    Bernard Krooks, a New York estate-planning attorney, says he's seeing more clients ask for this type of document, though not all states recognize them. He said documents can protect family from impulsive spending.
    "When people are grieving, they're going to spend thousands more," he said.
    Q: We are 76 and 77, retired and have $500,000 in an investment account. We get $3,800 per month in combined Social Security benefits, and my wife has a $12,000 annual pension. Can we go much beyond 5 percent as a portfolio withdrawal rate?
    A: What are the chances at least one of you will live an additional 15 to 20 years? If they're pretty good, also keep in mind that when one of you passes away, you'll be down to one Social Security check and possibly no or a reduced pension. Taking a one-time large withdrawal for a specific purchase is pretty easy to justify if most of your essential expenses are covered by Social Security and the pension — but ramping up withdrawals indefinitely could be trouble. Also be aware that when most experts talk about a 4 or 5 percent initial withdrawal, that means taking out an initial amount, then adjusting that for inflation thereafter. If you can handle the volatility as markets fluctuate, sticking to a percentage of whatever your portfolio amounted to the previous year will keep you from exhausting the funds.
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