By Patricia M. Lampert, CFP®

When it comes to planning for retirement, one of the most difficult challenges is saving enough money to maintain our desired lifestyle while life expectancies continue to increase. One helpful step might be to move your employer-sponsored 401K assets into an IRA Rollover account. This transfer is considered a “custodian to custodian” transfer and does not create a taxable event and allows your investments to continue tax-deferred growth. Today, most of us know what an IRA Rollover is because we left a job and had to learn what to do with our 401K assets and the pending options. If this is an issue you might face, you want to be prepared when the event occurs. Take a look at the benefits of moving your 401k assets into a self-directed IRA Rollover account:

Benefits of Using IRA Rollover Accounts

Diversification: IRA Rollover accounts offer owners full control of their investments. Investments options are broadened in IRA Rollover accounts, compared to the small list of mutual funds typically offered by an employer 401K. You can invest in individual stocks and bonds, mutual funds of your choice or fixed or variable annuities that include death benefits. Often, in an employer plan, the participant’s contribution is matched by employer stock, thus creating a lack of diversification. Rollovers can eliminate or reduce your exposure to one stock holding.

Economics: Typically, there are additional management fees you pay as a participant of a 401K Plan, averaging between one-quarter percent to 1.25 percent. An IRA Rollover account usually costs between $25 to $50.

Distribution at Death: One of the most important reasons to roll over assets held in a 401K is that after death, the assets are distributed as one lump sum and taxed accordingly. An IRA Rollover account can be set up to stretch IRA accounts for the benefit of the beneficiaries (there can be more than one).

Multiple Beneficiaries: There are more choices for beneficiary designations outside an employer plan. An IRA Rollover allows for selection of non-spousal designations (without consent of spouse) except in community property states.

Flexibility: Assets held in an IRA Rollover account can be segregated into two separate accounts with one used to supplement income during early retirement or for qualifying emergency events as defined by the IRS Tax Code.

Distributions which are taken in substantially equal periodic payments over the time period no less than 5 years and/or equal to the amount of years until the individual reaches 59-1/2, are considered one of these qualifying events. Some of the other events are disability, first home purchase, medical expenses, and higher education.

The other account is held for long-term retirement needs or until 59-1/2. This is a useful tool.

General Facts
Assets in an IRA Rollover account can be left in the tax-deferred account until April 1st of the year following the year the account holder turned 70-1/2. The account holder always has the option to take MRD (Minimum Required Distribution) in the year they do turn 70-1/2, but can wait until April 1st of the following year. If one decides to postpone the first MRD, until the following year, they will also have to make a second MRD by December 31st of that year. In subsequent years following the first year, MRDs are required to be made by December 31st. A 50% penalty is imposed if MRD is not made on time or if the amount is less than what is required. The MRD amount is based on year-ending account values of prior year and the account holder’s life expectancy. Taking your Minimum Required Distribution can be a good way of transferring your assets to taxable accounts and to set up an emergency fund. But, of course, your best bet is to try to allow your money to grow in the tax-deferred environment with control over the beneficiaries and to avoid the tax man as long as possible! The MRD applies to any traditional IRA, not just an

IRA Rollover.
You’ve worked long and hard to build your nest egg, so why not start managing it more effectively? If you invest wisely and effectively, your IRA assets will supply you with the retirement income you will need. Furthermore, it can help you with unanticipated emergencies along the way. Most people like to be in control of their money, but often they just don’t have time. It is best to partner with a financial advisor/planner to create a strategy and define your goals so that you can utilize your assets effectively and enjoy them while you are alive, whether you are officially in retirement or not. And hopefully, there will be some left over for the kiddies!

Patricia Lampert, CFP® of Allegheny Investments, Ltd. is a Certified Financial Planner in Peters Township and is available to discuss strategies that are the right decision for your family. She can be reached at 724-743-4755, or by e-mail at plampert@patricialampert.com. Please browse her web site at www.patricialampert.com. Securities through Allegheny Investments, Ltd. 3000 McKnight East Drive, Pittsburgh, PA 15237, 412-367-3880.