A 401-K rollover, is not an exercise like P-90X and it is not another futuristic movie title.  A401-K rollover is what you  do with your company retirement money, when you leave your current job.

Let’s say you have been working at hospital A for twenty years, and have built up a significant amount of money in your 401-K (or 403-B).   Now you have been offered a big promotion and raise to work for hospital B.

What do you do with your money?  Well, it depends on tons of factors, but lets work through a few of them.

• Your plan at your old company may require you to move your money-most don’t unless it’s less than $5,000.
• If you think the old plan is great, and the hospital is stable, you can leave it there-be sure to keep up with it, with change of address notifications, if you move.  You don’t want to lose touch with your money!!
• If you want to move the money, then you need to do a “Rollover”.

So what are your “rollover” choices:

• Have your money “transferred to your new employer.  Make sure you like the options in your new employers retirement accounts-if not keep reading.
• Rollover the money into a traditional  IRA-either with a brokerage, or a mutual fund company.
• Rollover the money into a Roth IRA.
• Let them send you a check for the money-go have a big party, buy a new car, new clothes and Jimmy Choo’s!

All of the above are fine except the last one!  If you take the money and run, your old employer is required to send 20% of the money to the feds for taxes, as they consider this income, and if you are under 59 1/2 they also slap you with a 10% penalty (yes that money is gone) for being stupid!!!!

As to whether to choose a traditional IRA or Roth IRA depends.  The advantage of the Roth is that your money when you withdraw it, is tax free.  When you withdraw money from a traditional IRA, you pay taxes on the money at whatever rate applies-IF that is very little money, and your income is low, then the taxes may be low.

However, if you spend the next 40 years learning to act and then become a “Millionaire Nurse” then those taxes may be significant.  So, if you can afford to pay the taxes on the money now, then conversion to a Roth IRA, I think, is the best decision.   Now companies that manage Roth IRA’s, have calculators that you can play with to help with the decision.  And you can do both, have part put into a traditional and part a Roth.

But you still are having to “guess” at what you tax rate will be when you retire.  And I can only guarantee one thing-the odds of any of us “guessing” correctly is near zero!!!  So as I have said before, don’t have paralaysis by analysis, do your best due diligence and homework, then push the damn button!  EXECUTE!!! (sorry, but sometime you have to get people’s attention.)

Now to discuss all the implications of buying stocks, mutual funds, and deciding how to invest in your new IRA Rollover is worthy of a book, or at least several posts here-so we will deal with that in the future… I know, you can’t wait!!!

Now, as to how to actually arrange the transfer, you have to be proactive.  Call your benefits people at your old employer, and ask them what paper work you need to fill out to move your money.  Ask the people that you are moving the money to, what paperwork you will need to fill out, so they can accept the money,-without it disappearing in cyberspace…. So make sure both ends are covered.

If you aren’t sure if you have filled out the forms correctly ask for help-if you can’t get any one to help, then maybe you need your new financial company/brokerage folks to help, or even get an independent financial advisor to do so, and pay them their hourly rate for assistance.  Just keep bothering people on both sides  of the transaction till it gets done!!!

So let me know your questions or comments. There are plenty of exceptions to the above rules-special circumstances for withdrawal without taxes or penalties, such as disability, etc.  So, keep that in mind.

There will always be unusual exceptions.  Like the old saying in medicine-when you hear hoof beats, don’t expect to see zebras-but every now and then, a zebra will show up and bite you on your “donkey”….

If you have done a “rollover” let us know how hard or simple it was.  What was your experience?