Jean Chatzky
Whether they are changing jobs or need extra cash, many people are pulling money out of their 401(k) retirement plans instead of rolling their savings over to an IRA. As a result, Jean says these unwise investors are losing nearly all the benefits they get for having that money in a 401(k) plan to begin with. She talks with Spencer Williams, CEO of RolloverSystems, about the importance of rolling over your retirement savings into an IRA.

Spencer says when you prematurely withdraw funds from a 401(k), you risk losing up to 40 percent in taxes and penalties. For example, if a 30-year-old who plans on retiring at age 65 cashes out a $20,000 401(k), he would only take home $12,000, thereby losing $8,000 right off the bat. If he had allowed that same money to grow, Spencer says he would have had $150,000 at retirement.

Spencer says rolling over your retirement savings money into an IRA is one of your best options, and he offers this advice for getting started:
  • Know where you want to open up an IRA. Research reputable financial institutions that handle these types of transactions, Spencer says.
  • Have your 401(k) statement handy. Spencer says there's no need to fear mounds of paperwork—your 401(k) statement is really the only thing you'll need to complete the rollover.
  • Find out the amount of any annual fees. Spencer says most companies charge about $20 to open an IRA for a modest amount of money, for example, $10,000 to $20,000.
  • Find out what types of mutual funds the company you're considering chooses. "All companies that offer mutual funds are required to tell you how much they cost, and a reasonable number for a mutual fund would be in the 1 percent range," Spencer says.
The information provided here is general advice and you should always consult your own financial adviser before making major financial decisions, including investments or changes to your portfolio. The opinions expressed by the hosts, guests and callers to Oprah Radio are strictly their own.


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