Handling a retirement account from a former firm
Q: What would you recommend doing with a 401(k) account that is being maintained with a past employer when you have concerns about that employer's financial health and the operation's longevity, but your current employer doesn't offer a 401(k) plan?
D.B.W., via e-mail
A: "I'm seldom concerned about the financial impact of a firm on a 401(k) plan since such plans, by law, are sequestered, or independent, of the firm and subject to strict federal regulation," says Gary Schatsky, a fee-only financial planner and attorney in New York.
The real issue here, he says, is "where to keep your account."
You could leave it alone. "But you could also have the account directly transferred over to an IRA," says Mr. Schatsky. Doing so, he says "would give you greater control over the management of the account."
If you do shift it over, make sure that it is handled as a direct transfer to avoid taxes and penalties. Have the IRA administrator handle the transfer.
Q: I am about to retire, and my employer has told me that I have four options regarding my traditional pension. I can elect to leave half, two-thirds, or 100 percent of the benefit amount to my spouse. Or, I can leave nothing. If I leave her a survivor benefit, I would sharply reduce the amount of the pension that I would receive. I also have a 401(k) plan, which I will earmark to my spouse, an $80,000 insurance policy for which she is the beneficiary, and a house that is fully paid up.
Any thoughts on how I should deal with the survivor benefit?
W.D., via e-mail
A: "You have two basic issues to consider," says Schatsky:
1. If you leave her a benefit, and thus reduce the amount of your pension, would you still have enough income to live on during your retirement?
If so, leave her a benefit. If you don't leave a benefit, make certain you have earmarked other assets to her, such as insurance, or her joint interest in your home.
2. "What is the state of your health?" Remember, survivor benefits are designed to help a loved one carry on after the death of the breadwinner, Schatsky says. But the overall retirement plan is designed to provide you a continuous stream of income, when combined with Social Security and other savings, for daily living expenses.
Questions about finances? Write:
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