Q. I have a new job and I had a 401(k) at my old job. Should I leave the money there? I’m not an experienced investor.
A. Congrats on your new job!
You said you’re not an experienced investor, but that may not matter because you’re probably managing the 401(k) on your own whether they realize it or not, said Michael Maye, a certified financial planner and certified public accountant with MJM Financial in Gillette.
He recommends you start to educate yourself, recommending a book called “The Lazy Person’s Guide to Investing: A Book for Procrastinators, the Financially Challenged, and Everyone Who Worries About Dealing with Their Money” by Paul B. Farrell.
“It is an excellent primer on the basics of investing and even suggests low-cost model portfolios based on Vanguard funds,” he said.
Now to your actual question.
Maye said you should ask yourself several questions before deciding to leave the money at your old employer’s 401(k):
— Does my old employer’s 401(k) offer a variety of asset classes allowing for a properly diversified allocation?
— How much do the underlying mutual funds cost in your old employer’s 401(k) plan and how does their performance compare to their peer group and an appropriate index?
— In essence, does the plan offer funds that are relatively low cost and offer a good risk adjusted performance?
If you decide not to leave the money at your old employer’s plan, Maye said, you should not take all the money directly but rather roll it into your new employer’s 401(k) if allowed by that plan, or into a traditional IRA.
“By rolling it into either 401(k) or IRA you will avoid paying taxes on the distribution as well as avoiding the 10 percent penalty if you are under age 59 1/2,” he said.
Even if your new employer’s 401(k) allows you to roll money in from a previous employer’s plan, look before you leap. First, ask the same questions above about your new employer’s 401(k) plan.
“If you go the IRA rollover route, larger financial firms such as Vanguard and Fidelity offer help with selecting funds and asset allocation around your risk level/age,” Maye said. “The level of service typically depends on account size.”
The rollover IRA route typically gives you access to more investment options particularly low cost ones, Maye said.
“Another option as an inexperienced investor is to select a target date retirement mutual fund,” he said. “For example, if you are 30 years old and were planning to retire at age 65, you would be looking at a 2050 target date mutual fund.”
By using a target date fund, the asset allocation adjusts over time i.e. becomes less risky as you age, Maye said.
Email your questions to moc.p1540304539leHye1540304539noMJN1540304539@ksA1540304539.