Personal Finance: Ask the Experts

Get advice on money matters from The Bee's Claudia Buck and a panel of local experts

September 12, 2012
Should I roll over my current 401(k) to improve performance?

Q. My wife and I are 53 and 56 and have been saving and investing in our company 401k plan for over 20 years. My wife will get a small pension but for the most part we will have to use our savings during retirement. We hope to pay our mortgage off in a few years and both potentially retire in eight years.

We are currently looking through our accounts and feel the performance of our accounts (my wife especially) have performed terribly! We also receive zero advice from our company.

We only have a few years to work and want to make sure accounts are growing and getting good returns while we're preparing to retire. What are our options to find a manager if most of our money is in our 401k but we don't want our company to manage our investments anymore? Is it advisable to move our money to an investment firm this late in our lives? What are the advantages of moving our money? (FYI my wife's account is with PERS and mine is with Fidelity.) Thanks -- M. Chin, Sacramento, CA

A: I'm pleased to hear you began investing early and have been taking advantage of your company's 401k. Saving early is a smart way to reduce your reliance on market performance prior to and during retirement. One of the down falls of investing in a company sponsored 401k plan is, often times, your investment choices are limited. In addition, the company plan is established to assist a multitude of demographics. Employees with investment assets in the pool can range from 21 year olds with understandably high risk tolerances to 65 year olds with only months until retirement.

Many pre-retirees feel they have reached the time in their life where they become more conservative and thorough. They may also want active management of their investment assets and better communication regarding the markets while they are still employed.

One option is an "In-service Distribution" to an outside IRA, managed by an investment firm or brokerage. The guidelines can be strict, however, and 401k plan administrators have their own rules for handling in-service distributions. They are required to go by IRS guidelines, but they can also make their plans more restrictive than the IRS if they so choose.

Generally speaking, you must be at least 59½ to roll over the 401k of a current employer. In addition, there are guidelines defining the assets that can be rolled over free of penalty i.e. pretax or post tax dollars, employer stock and over fundings. For previous employers, however, the rules are much more flexible.

Another reason to do an in-service rollover pops up if you're leaving retirement money to your kids or grandkids instead of to a spouse. A spouse who inherits either a 401(k) or an IRA can roll it into his or her own IRA with all the flexibility that an IRA offers its original owner. Kids, grandkids or other non-spousal heirs who inherit an IRA can't do that, but they can keep the money in an "inherited" IRA, potentially stretching out withdrawals and tax deferral for decades.

Whether an in-service distribution to a rollover IRA is a good idea or not, should be a carefully made decision. This decision should be analyzed by both your tax and investment representative.

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Meet Our Financial Experts

Claudia Buck

Claudia Buck is The Sacramento Bee's personal finance columnist. Read all her columns here. Contact her at

Terri Carpenter

Terri Carpenter offers advice on job hunting, retraining and career counseling. Carpenter works at Sacramento Works Inc., the career and job training arm of the Sacramento Employment and Training Agency (SETA). With 15 years in the field, she has hands-on experience with everyone from first-time job seekers to career professionals seeking advice after a layoff or looking for a mid-career change. Ask her a question.

Carlena Tapella

Carlena Tapella is a partner in the law firm of Webb & Tapella Law Corp. in Sacramento. The firm specializes in estate planning and probate, such as estates, trusts, conservatorships and litigation. She is a past president of the Sacramento County Bar Association's Estate Planning & Probate Section. Ask her a question.

Kimberly Foss

Kimberly Foss, certified financial planner, is the founder of Empyrion Wealth Management in Roseville. With nearly 30 years in the financial industry, her clients include women in transition, small business owners, retirees and "pre-retirees." Ask her a question.

Jesse Weller

Gregory Burke, a CPA and tax expert with John Waddell & Co. in Sacramento since 1984, worked as an IRS tax auditor for six years. He’s a past chairman of the California Society of CPAs. Ask him a question.

Daniel Tahara

Daniel Tahara takes your questions about California taxes. Tahara, a spokesman for the state Franchise Tax Board, has 10 years of experience as a tax auditor. Ask him a question.

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