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On August 10, 2004 Dan Shadwell of Channel 8 Local News
interviewed Gloria Foote. The topic of their discussion was 401(k)
planning. The following is the transcript of this interview.
Dan
Shadwell – And welcome back. You leave your job but you have a 401k. What
should you do with that? Gloria Foote from Financial Focus joins us this
morning to talk about that and some other issues. Gloria, thanks for being
here.
Gloria
–Its my pleasure.
Dan
Shadwell – So let’s talk about this. 401k’s of course we encourage everyone
to to participate in those if you have that opportunity. But if you decide
to leave there is some paperwork to deal with and a lot of questions about
what to do with that.
Gloria –
You’re exactly right. There are really three basic options. You can leave
your 401k where its currently with that employer if he will allow it.
Sometimes they do not. You can leave it there, manage it there and you’re
able to invest in their investment options. Sometimes those options are
limited. Another option would be to take possession of the 401k. If you
take it as a lump sum you have issues to deal with, with federal and state
income tax that are pretty penalizing. And if you are under age 59 and one
half you are going to pay both federal and state penalties. So that is not
a good option.
Dan
Shadwell – Yea.
Gloria –
The third and probably most desirable option is that you transfer that
money via a 401… moving your 401k into the IRA Rollover. You have the
universe of investments to choose from. And you can do things you cannot do
within your 401k. You can invest in individual stocks and bonds that are
not necessarily just your company’s stock.
Dan
Shadwell – Uh Huh…
Gloria –
You can invest in other securities, CDs, Treasuries, and something that
most people like to deal with today is real estate. And you can do that
often times in many ways outside of the 401k in an IRA Rollover.
Dan
Shadwell – Really! Now OK… So how would … Now I would imagine this is a
fairly complicated process though you probably have to deal with some
paperwork initially indicating that you are aware of possible ramifications
if you don’t redistribute the money correctly?
Gloria –
Absolutely
Dan
Shadwell – Uh how long of a process does that generally entail?
Gloria –
Well, although complicated, its become much more streamlined because most
people do do a Rollover IRA.
Dan
Shadwell – Um Huh.
Gloria –
So you simply fill out in the paper work where you want that to go. It
needs to go directly generally to your Rollover IRA because if you take
possession of the money they are going to withhold 20% that goes to the
federal government at that stage of the game. You will get it back if you
do do the rollover but it may take you a year to make that credit on your
tax return. So the ideal is to go directly from the 401k into the IRA
Rollover. No 20%. No penalty. No taxes.
Dan
Shadwell – Now for people who might be in a rush. Say they are picking up
and moving and having to deal with all the complications of the move plus
find a new place to live and getting a new job and all that. If they decide
to wait a little while, is that going to cost them?
Gloria –
It doesn’t cost them, but the employers generally say that by such and such
period of time they may give them ninth days or sixty days to actually fill
out the paper work and make the transfer.
Dan
Shadwell – And this should be a nice opportunity for people to sort of reassess
where they are and maybe realign some of their goals and figure out what
some better opportunities might be I would assume. Yea?
Gloria –
It is absolutely. Honestly people do spend more time planning their
vacations than they do their investments in their IRA.
Dan
Shadwell – Yea.
Gloria –
And in the retirement assets and coordinating those. This is a great
opportunity to take a look at it.
Dan
Shadwell – Yea. It can be a dizzying variety of investment opportunities.
Do you recommend people seek a little help on this?
Gloria –
Absolutely. They should check with their financial advisor to make sure
that they do this properly.
Dan
Shadwell – Ok, good enough. Gloria, real quickly you guys are going to be
holding a seminar taking a little bit about these issues. People can attend
this if they like - and I would imagine a lot to talk about.
Gloria –
There is – on September 18th through Mira Costa College we do
have a class that we’ve been teaching for years. It’s a one day class on
just general financial planning. It covers budgets financial statements,
goals, those types of things.
Dan
Shadwell – Ok. And I think we have all this information. We’re going to put
it up on the screen here just so you can get a good look at it. The
Understanding Money workshop takes place as Gloria said Saturday September
16th Mira Costa College’s San Elijo Campus. It is just 49 bucks
which is uh peanuts compared to what you could lose if you if you mis-step
in this whole process. You just… You want to make sure you’ve got the good
information. Now I tell you what we’ve only got a half of that phone number
up there so I’m going to read…. Well, let’s see I’m going to read it to you
right now so if you have a pencil and paper handy just write this down. The
correct phone number is 760-795-6820. There it is. We’ve got that in there
so uh we’re going to encourage you to check that out. And Gloria thanks so
much for joining us this morning.
Gloria –
You’re very welcome.
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NOTE:
Other considerations that may be reasons not to roll retirement
distributions to an IRA are that you do not have the ability to take a loan
or possibly continue repayment of a loan you had in your prior employer's
plan. If employer stock is part of the distribution, the "basis"
in the stock is lost and there are no capital gains tax opportunities once
the stock is inside an IRA. Additionally, the 10% penalty applies to
distributions to someone under age 59 1/2, where a company retirement plan
distribution avoids the 10% penalty if you are age 55 or older.
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