What You Need to Know About Rolling Your 401(k) to an IRA
By Douglas Goldstein CFP®- helping olim handle their U.S. investments from Israel
When you change jobs, everything you need to take with you can be neatly packed into a box – except your retirement plan. When you leave your job, you need to think about rolling your 401(k) into an IRA (Individual Retirement Account). If you left your job to make aliya, this question becomes even more crucial, as cross-border financial regulations come into play with keeping the tax-beneficial status of American retirement accounts.
What are your options?
If you leave your American job to move to Israel, you have four options for your 401(k):
• Keep the money with your former employer’s 401(k) plan,
• Roll your funds into an IRA,
• Roll your money into your new employer’s plan if it’s allowed,
• Cash out your 401(k) plan by withdrawing all your money (not recommended).
The best course of action depends on your financial situation, your attitude about managing your own retirement funds, where you will live, and the specific plan options available to you. What are the pros and cons of rolling your 401(k) plan into an IRA?
Advantages of an IRA Rollover
There are several reasons why rolling your 401(k) into an IRA may be advantageous. An IRA gives you more control over your specific investments, as they tend to offer more investment options than a typical 401(k) plan. Furthermore, you can easily manage an IRA from overseas.
Disadvantages of an IRA Rollover
If you want access to your retirement funds before age 59½, you may prefer to keep your funds in your 401(k) or roll them into your new employer’s 401(k) plan (if available). If you are younger, you might want to take advantage of the fact that 401(k) withdrawals are allowed at age 55. Or, if you are happy with your current investments, it may be better to leave them where they are rather than rolling them over to somewhere else.
Before changing any retirement plan, make sure to consult with a financial advisor and tax professional to understand the tax consequences of any move you make. To learn more about IRAs, read: ProfilePerspectives.com/401-and-ira
Douglas Goldstein, CFP®, is the director of Profile Investment Services, Ltd. www.profile-financial.com. He is a licensed financial professional both in the U.S. and Israel. Call (02) 624-2788 for a consultation about handling your U.S. investments from Israel. Securities offered through Portfolio Resources Group, Inc. Member FINRA, SIPC, MSRB, FSI. The opinions expressed are those of the author and not those of Portfolio Resources Group, Inc. or its affiliates. Neither PRG nor its affiliates give tax or legal advice.
How to Make a Good Investment Decision
By Douglas Goldstein CFP®- helping olim handle their U.S. investments from Israel
Since one person’s good investment choice may be a huge mistake for someone else, what factors should you consider when deciding upon a potential investment?
In investing, the only hard and fast rule is that past performance never guarantees future returns. Though you should try to understand why a security acted in a specific way in the past, the most important thing you can do is make sound decisions based upon your personal situation. To help you make an even clearer decision, use an investment evaluation tool like the one available at Profile-Financial.com/investment-evaluation
All too often, folks lose money as a result of not asking the right questions. So, when deciding what to invest in, ask yourself:
What is your net worth?
Why is knowing your net worth important? Before you invest your money, you need to know how much you really have. This doesn’t only refer to savings, but also to other assets such as real estate and collectibles (if you would ever consider selling them). Knowing your total net worth helps you create an asset allocation model and understand how the new idea would fit in your big picture.
What is your tolerance for risk?
Risk tolerance is very individual. If you are close to retirement, your risk tolerance level may be lower than that of a younger person because you have less time to recoup any potential loss. Sometimes even younger folks don’t have the stomach for market volatility and they need to choose more conservative investments, too.
What is the purpose of the investment?
Are you investing for growth, to maintain your principal, or to generate income? Growth investments increase your wealth through long- or short-term appreciation. These investments include mutual funds and various types of stocks. Income investments, on the other hand, generate steady income through interest or dividend payments. Examples include dividend stocks or bonds. An income investment may not be suitable for growth investing, and vice versa.
To find out what other questions you should ask before making a financial decision, check out the free investment evaluation tool at: Profile-Financial.com/investment-evaluation
Douglas Goldstein, CFP®, is the director of Profile Investment Services, Ltd. www.profile-financial.com. He is a licensed financial professional both in the U.S. and Israel. Call (02) 624-2788 for a consultation about handling your U.S. investments from Israel. Securities offered through Portfolio Resources Group, Inc. Member FINRA, SIPC, MSRB, FSI. The opinions expressed are those of the author and not those of Portfolio Resources Group, Inc. or its affiliates. Neither PRG nor its affiliates give tax or legal advice.
Was Miguel Cervantes’ Don Quixote fighting imaginary windmills or market volatility when he said, “Don’t put all of your eggs in one basket?” Putting all of your assets in one basket doesn’t keep them as safe as you might think because there is always a risk that you might lose them all at once.
The way to counter this is the investment strategy of asset allocation. Asset allocation, or diversification, may be even more important than picking the “right” stocks.
The idea is to diversify your money among different types of assets, such as equities, fixed income, and cash and its equivalents, rather than putting all your money into one single asset class.
Minimize potential losses
The main reason for practicing asset allocation and having a diversified portfolio is to minimize potential losses. If you invest in a single asset class, and it does badly, you could sustain a heavy loss. However, if you spread your investments among different asset classes, if one class performs poorly, your losses could be mitigated by holdings in different, hopefully better-performing asset classes. For example, historically, when bonds tend to have low interest rates, stocks rise in value, and in periods of high interest rates, bonds outperform stocks. Of course, past performance is no guarantee of future returns.
How to determine your asset allocation
How do you choose which asset classes to invest in, and in which proportions? This depends on your personal situation and goals. If you want to save for a specific, short-term goal, you would put more of your money into liquid assets that minimize jeopardizing the principal, such as certificates of deposit (CDs), money markets, or cash. However, if you are investing for the long term, you might include a larger proportion of stocks and other growth investments in your portfolio. As the goal is more long term, you have more time to ride out market fluctuations.
To find out more about asset allocation and the importance of having a diversified portfolio, read my blog: Profile-Financial.com/asset-allocation
Douglas Goldstein, CFP®, is the director of Profile Investment Services, Ltd. www.profile-financial.com. He is a licensed financial professional both in the U.S. and Israel. Call (02) 624-2788 for a consultation about handling your U.S. investments from Israel. Securities offered through Portfolio Resources Group, Inc. Member FINRA, SIPC, MSRB, FSI. The opinions expressed are those of the author and not those of Portfolio Resources Group, Inc. or its affiliates. Neither PRG nor its affiliates give tax or legal advice.
Why You Need to Build an Emergency Fund
By Douglas Goldstein CFP®- helping olim handle their U.S. investments from Israel
What would happen if you had an emergency – like a huge dental bill or unexpected car repair? And even worse, what if you had lost your job a month before and couldn’t even get an interview for a new one? To top it off, you get a call that a close relative in the States is sick and you desperately want to fly in to help. Do you have cash available to pay, or would you need to withdraw from your long-term retirement account or sell investments (possibly incurring a large tax bill)?
How to build an effective emergency fund
Generally, folks should have three to six months’ worth of essential living expenses as the benchmark, and sometimes as much as twelve months or more, depending on their other assets and job prospects.
Your emergency fund money should be in a liquid investment so it can be accessed instantly, when needed, without penalties. It’s true that you won’t earn a lot on it, but that’s the cost of liquidity. Investing in something that yields a higher return usually involves greater risk… risk you shouldn’t take with your emergency fund. Since you may need all of this money, you can’t afford a drop in its value. Additionally, if you put this money into an illiquid investment, you may not be able to sell it quickly enough when faced with a bill. Remember, emergencies don’t wait for a bull market.
Review your personal life and work situation. Someone who works in a field with frequent turnover – like technology, or on a commission-based salary, may need a larger emergency fund. Likewise, a single person may face fewer emergencies than a family with many children, and his fund may not need to be as large.
If you continually need to call on your emergency fund, you should also reevaluate your budgeting practices.
For other advice on saving and investing, download a free copy of The Retirement Planning Book at: Profile-Financial.com/rpb
Douglas Goldstein, CFP®, is the director of Profile Investment Services, Ltd. www.profile-financial.com. He is a licensed financial professional both in the U.S. and Israel. Call (02) 624-2788 for a consultation about handling your U.S. investments from Israel. Securities offered through Portfolio Resources Group, Inc. Member FINRA, SIPC, MSRB, FSI. The opinions expressed are those of the author and not those of Portfolio Resources Group, Inc. or its affiliates. Neither PRG nor its affiliates give tax or legal advice.