To have our periodic investment commentary delivered directly to your inbox, please visit www.orioncapitalmgmt.com and click on “Letters to Investors” to sign up.
Don’t Leave Those Old 401(k) Accounts Behind!
April 27, 2011
By Peter C. Thoms, CFA
Founder, Orion Capital Management LLC
At Orion Capital, we help our clients to simplify, streamline and gain control of their financial lives. We believe that you ought to know exactly where your money is, how it is invested, and why it is invested the way it is.
One easy step you can take to make progress on this front is to roll all of your old 401(k) accounts into a single Individual Retirement Account (IRA).
There are three compelling reasons to do so:
- Having a single IRA account simplifies your life. Having multiple old 401(k)s floating around does nothing to benefit you. They generate extraneous paperwork and make it harder to keep track of how your investments are doing and how they do (or do not) fit into your overall investment plan.
- An IRA has more investment options. An IRA account held at a typical brokerage firm has a very wide range of potential investment optionsmutual funds, individual stocks and bonds, exchanged-traded funds, CDs, options, etc. With a 401(k), however, you usually have a very limited menu of funds from which to choose. But are these the best funds in the land from which you are choosing? No. They are simply what is offered by the firm that won your old company’s 401(k) business. There’s no reason limit yourself to just a few 401(k) investment options.
- Rolling over to an IRA can reduce your costs. Many 401(k) plansespecially those of smaller employersare expensive. Don’t for a moment think that you are not paying management fees and trading costs to have your money in a 401(k). You most certainly are, but the true costs are likely buried deep in your 401(k) paperwork. There are almost certainly less expensive investment options available to you in an IRA.
Rolling your 401(k) accounts into an IRA is easy and straightforward but there are serious financial consequences if the rollover is not done correctly. The biggest and most common mistake individuals make is to withdraw their 401(k) assets themselves and then forget to roll them into another tax-deferred accountsuch as an IRA. The IRS considers such a withdrawal taxable income and you may be hit with a large tax bill. Furthermore, if you are under 59 ½ (and thus not yet eligible to take penalty-free distributions from your retirement accounts), you will be hit with an additional 10% penalty on the withdrawn amount.
Rolling over your 401(k)s into an IRA is a simple processbut it has to be done correctly. Please give us a call if you would like to learn more about you can roll your old 401(k)s into an IRA and other ways that we help to simplify our clients’ financial lives.
Peter C. Thoms, CFA
Orion Capital Management LLC
1330 Orange Ave. Suite 302
Coronado, CA 92118
Tel: 619.435.1701
Email: [email protected]
About the Author:
Peter C. Thoms, CFA, is the founder and managing member of Orion Capital Management LLC, an independent Registered Investment Advisor based in Coronado, California. The firm focuses on managing global equity accounts for both institutional and private clients.
Disclosure:
This document is for informational purposes only. Nothing in this report is to be construed as a specific investment recommendation. This document does not constitute the provision of investment advice, which is only provided by Orion Capital Management LLC under a written investment advisory agreement and only in states in which Orion Capital Management LLC is registered or is exempt from registration requirements. Orion is not a tax advisor and does not provide tax advice. For tax advice individuals should consult their CPA.
