People are sometimes unwilling to take chances with money. While a little risk-aversion can be a good thing, if you are 15 or more years away from retirement, a little risk can pay off in big dividends. I’m not suggesting that you dump all of your money into high risk funds. What could be a good idea is to diversify.
Diversification can come in many forms. One way that is available to many American workers but is little used is the 401k rollover. A 401k rollover to traditional IRA is only one of the options open to you. A recent study found that a whopping 28% of Americans have more than one 401k plan. For the most part those old 401ks are leftovers from past jobs. The funds have chugged along, gaining a bit and losing a bit to fees. There are worse things that could happen to your money. If you were to take the old 401k(s) and roll it into an IRA or a Roth IRA, you would be spreading your money in a good way.
401k rollovers to IRAs can jump start a second retirement account. You roll over 401k to IRA with, say $5,000. That’s what has been languishing in your old retirement accounts. Now you have a fresh investment account and the $5,000 is not counted towards your yearly maximum contribution to the IRA. How nice is that? The way the 401k rollover to IRA rules work is that the transferred money is simply added to the account.
When you request the 401k rollover to IRA or the 401k rollover to Roth IRA, you answer the same questions you would with a traditional 401k. Where do the funds go? How much money do you contribute each month? How often do you calibrate? Depending on your age, you will have a particular answer to the fund distribution. As we said at the beginning, the younger you are the more risk you can take. Time diminishes the risk because the market, over time, will flatten out. In other words, if you have 30 years to spend in the market, the ups and downs of a given year cease to matter. This is a very good thing. As to how much money to contribute, you should be saving 15% of your income for retirement. Put that way, 7.5% in a 401k and 7.5% in an IRA or Roth IRA would suit just fine. The most important thing is that you do contribute to the accounts. Prepare for retirement today so that your golden years will indeed be golden.
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