| An eNews Update to our Quarterly Newsletter |
November 2007
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When you leave employment for another position or to retire, you will need to deal with your active retirement plans with that employer. You may also have plans from former employers that need addressing. It may initially seem like a simple decision, but it really is not. There are pitfalls, and mistakes can be costly. Spectrum Group of Chicago conducted a two-year study ending this April. It found that $245 billion was rolled by 7.4 million departing employees nationally during that period. 67% of those people used a financial advisor. But, interestingly, the larger the amount rolled over, the greater the percentage of those employees using an advisor. 1 That tells us something important. Rolling over your retirement nest egg is not a job for amateurs. The reasons for that conclusion are significant. First, an ineptly handled rollover can cause unnecessary penalties and taxation. Most people are familiar with the rule that allows an IRA rollover within 60 days of receiving a retirement plan distribution. But fewer folks are familiar with a competing law that requires your former employer to withhold and immediately send to the Treasury Department 20% of the amount distributed directly to you – whether you intend to roll the proceeds or not. Then the withheld 20% of the distribution is penalized an additional 10% if you are under age 59 ½ as a premature distribution. As a result, you will have only 88% of your money remaining to roll over. This can be avoided by arranging a direct transfer from your former retirement plan to your new IRA rollover account custodian. This is a simple solution that is often mishandled. And, once it is improperly handled, it cannot be undone by pleading ignorance. As bad as the taxes and penalty sound, the real problem with a do-it-yourself rollover is the potential opportunity lost by not investing the money properly. Proper asset allocation is essential and intelligent securities selection based on a process, not magazine stories or a hunch, is crucial. Few people are equipped by education and experience or equipped with the resources and tools and able to devote the time to do this adroitly. There is a reason why there is a division of labor in a sophisticated economy. For example, if you do your auto’s mechanical work rather than use a professional garage, please advise me before I ride in your car, as I’ll find an alternative means of transportation. Correspondingly, the proper management of your retirement plan assets has very serious implications for your future financial security. So those folks in the study rolling over significant amounts of retirement plan assets were wise to seek professional guidance and investment management. We have done this for over 35 years and are ready to assist you now and in the future. Give us a call to discuss the benefits of gaining our assistance. We wish a happy, safe and peaceful Thanksgiving to all of our clients and friends. This article is for informational purposes
only and not intended as financial advice. Consult your financial
advisor to determine what is appropriate for your situation. If you have any comments, questions or suggestions concerning this
electronic newsletter, please email us at fgi@fragassoadvisors.com.
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