Q: When I left my former employer, I rolled my retirement plan balance into an IRA with the same company that handled the retirement investments for my employer. It's invested in money market and mutual funds, but because of the fees they charge, the account seems to be declining every month. I want to transfer the account to a CD at a local bank. My question is, can I do this without a penalty?
A: Yes -- you should be able to transfer your IRA without penalty. Just make sure you do the following:
- Choose a qualified IRA trustee to be the destination for the account (chances are your local bank is qualified to be an IRA trustee, but you should confirm that before moving the money).
- Notify your current investment company in writing that you wish to make an IRA-to-IRA transfer. Documenting this specifically is important so that investment company does not report the transaction as a distribution out of the IRA, which would have tax consequences.
It sounds like you have good justification for making this change. There's no reason why money market accounts should be charging you hefty investment management fees. As for the part of the account that is in mutual funds, with the strong run the stock market has made so far in 2013, your investments must be underperforming quite badly if you're losing money.
While it sounds like leaving your current investment firm is a good decision, make sure you don't trade one bad situation for another. Before you choose a new IRA trustee, make sure they have the types of services you need, and that their products are competitive.
For example, since you mention CDs, check to see how the rates at the bank you have in mind stack up with the best CD rates on the market. Make sure this is an apples-to-apples comparison, in which you compare CDs for the same time frame and account size. If this is retirement money you don't plan on needing for a while, you might consider a longer-term CD, since the best CD rates are typically found in longer-term products.
Beyond CDs, you might want to check what investment products the bank also has available, in case you want to diversify your investments. The wisdom of doing this is somewhat dependent on your time frame, but if you are investing for the long term, you might consider putting a portion of your money into stocks, because this can help you keep up with inflation. Just be sure to check on how the bank's stock investments have performed -- especially after all fees have been accounted for.
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