Q I recently was laid off after 31 years at the same company. I am fortunate to be getting a full year of severance. My question really involves my 401(k). Being very risk-averse, about two-thirds of my money is in the fixed-interest account, earning just more than 4 percent. My financial adviser recommends that I roll it over, saying he can get me invested in some higher-paying, similarly low-risk CDs. I understand that my options are limited in my 401(k), and that the rollover will give me many more choices. Is there a strong reason for me to go one way or the other? This is the majority of my retirement income, and I don't want to mess it up at this point in the game. A Many employers will let their workers keep their retirement plan money in the 401(k) even though they're no longer on the payroll. If you really like the plan options, I'd stick with it for now, assuming its OK with your former employer.
But my bias is for you to take control of the money through a rollover IRA. In most cases, employers will live up to obligations and behave ethically toward you. That's not my concern. Instead, it's a question of control. You're no longer working for them. It's your money, and if it's under your control you'll watch it carefully. Plus, you, not your former employer, then get to choose the investment company and investment options.
There are no tax consequences or penalty so long as the money is transferred from your former employer directly into the rollover IRA account. Check with human resources before you do anything, to make sure you understand any requirement the company may have about a rollover. The same goes with the investment company you've chosen to put your money in.
That said, it seems to me that you are reasonably satisfied with your 401(k) choices, and you have a conservative portfolio. You shouldn't feel any pressure to make a move. You have the time to research your options. You'll want to do business with a financial institution that offers low fees, good service, an easy to navigate website and investment choices that appeal to you. FDIC-insured certificates of deposit (of less than $250,000 to get the government's backing) are a good option for the conservative investor in today's financial environment. It's an option worth considering. But I can't really say whether it's the right investment choice for you.
Chris Farrell is economics editor for American Public Media's "Marketplace Money." Send questions to cfarrell@mpr.org, or to kaching@startribune.com. Put "Your Money" in the subject line.
