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Spring cleaning should apply not only to your house but to your retirement accounts. Whether you’ve maintained 401(k) accounts at old employers or have already opened a Rollover Individual Retirement Account (IRA), keeping an eye on where your accounts are held and what you’re invested in can help you to get the most out of your savings.
If you’ve left your retirement savings with former employers, you should consider rolling over your 401(k) plans into an IRA. A direct rollover, rather than taking a distribution and depositing the assets later, will ensure that you keep the tax deferred status of your assets and avoid potential penalty fees.
Why go through all the trouble? While there are exceptions, most people would benefit from transferring their money into an IRA. IRA accounts generally provide greater flexibility and lower fees. While 401(k) plans are limited in the choices of mutual funds they offer to participants, brokerage IRAs often come with an enormous breadth of investment options. Further, though your 401(k) may enjoy preferential pricing in terms of mutual fund fees, it is also likely to carry additional plan administration fees and expenses.
Once you’ve rolled over your retirement savings, it is important to look at the risk and return profile of your portfolio. When was the last time you reviewed your portfolio strategy and mix of investments? Certain investments or mutual funds provide a false sense of diversification and security, making it important to regularly analyze your holdings. Focus not only on the risk characteristics and asset mix of the portfolio, but on the fees charged by your mutual funds. Very often, you will find that there are funds that better suit your needs at a lower cost than what you’re currently paying. My article “Institutional Investing for the Individual Investor” covers this topic in detail.
Even if you took all these steps years ago, don’t overlook the importance of keeping up with your portfolio reviews. While spending too much time on your investments is also counterproductive, neglecting your changing needs as you go through life is a surefire way to end up in an asset allocation that is either too risky or too conservative for your present needs.
The importance of regular reviews applies to all of your retirement and non-retirement assets, and I believe it is important to tie these check-ups to an overall review of your financial life. Your investment strategy should support your life goals and objectives, so giving yourself the time to focus on the big picture will go a long way towards a portfolio strategy that works for you for the long term.
For more information about Dusting Off Your IRA, download my free eBook, “10 Tips You Need to Know About Your IRA Rollover”. This short book is packed with critical information that will help you make the right decisions about your retirement savings.
Written by Bradford Pine
Bradford Pine Wealth Group – New York City Financial Advisors
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