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How to turn a 401(k) into a socially responsible investment

By Steve Dinnen / July 9, 2007



Q:
I'm searching for a socially responsible place for a 401(k) that I have with an ex-employer. It's very important that I be able to add to the account automatically with pretax dollars.

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R.R., via e-mail

A: Many mutual fund companies offer socially responsible investments. Two that spring to the mind of Kim Anderson, a certified financial planner in Colombia, Md., are Calvert Mutual Funds and Domini Social Investments. Socially responsible investing can focus on a lot of different issues, such as improving the environment, empowering women, or enhancing product safety, says Ms. Anderson. "So look for mutual funds that emphasize the same issues that are important to you."

Moving the 401(k) to a socially responsible fund of your choosing is easy enough: Just contact the new investment company and tell them you want to roll over money from that employer's plan. They'll handle the paperwork and you won't be liable for any taxes.

Contributing pretax dollars to the new account is another matter. These new contributions may not be pretax, depending on your income level and whether you or your spouse are eligible to participate in an employer-sponsored retirement plan. The rollover fund administrator, or your tax adviser, will be able to tell you whether you qualify. Sorry, but those are the rules of the game.

If you qualify, you can arrange for automatic deposits. Ms. Anderson points out that you'll only be able to contribute $4,000 to your IRA in 2007 (or $5,000 if you are over the age of 50) versus $15,500 to a 401(k) (or $20,500 if you are over the age of 50).

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