Financial Planning for Generation X & Y Women
Notice: Because of a database server upgrade, this site may be partially non-functional from August 21st to August 22nd. No data will be lost. We apologize for any inconvenience.
Under slight reconstruction until 5PM CST today... Please excuse the dust!
Resource Center
Expert Q&A Archive Teleconference Call Archive Online Resources Federal Reserve Board Resources FPA Perspectives
Error — no()

Expert Q&A Archive

Questions about investing in IRAs and about transferring 401(k) plans into a IRA.
Are all IRAs invested so that there is some risk of losing principal, or can you deposit into a bank/credit union and earn interest like other savings accounts? Also, can you move funds from a 401K plan in another state into an IRA without penalty? In other words, is the IRA considered a qualified retirement account for such transfers? The amount would be much more than the current yearly maximum.
Pablo M. Bianchi, CFP:
expert info »
Think of an IRA as a glass. Of course you could fill the glass with milk, orange juice, soda etc. The same concept can apply to an IRA. You could invest the assets into stocks, bonds, CD's, Money Market accounts etc. In addition, if you have assets with a former employer you can roll those assets [over] into your own personal IRA, and as long as you do a direct rollover, you should have no issues.
Rosemary Ervin, CPA:
expert info »
IRA's can be invested in savings and money market accounts. It must be an account opened as an IRA. Do not commingle it with your regular savings. An IRA is a qualified retirement account, and you can roll from a 401(k) into an IRA, but not if you are currently participating in the 401(k). You must be retired or separated from the employment of the 401(k) plan sponsor. If you decide to roll your 401(k) to an IRA or a new employer, inquire about a "trustee to trustee" transfer. The transfer will be separate from your current year contribution.
Virginia Clay CFA:
expert info »
Many banks and credit unions allow you to set up an IRA using FDIC-insured cash or certificates of deposit. You should shop for a good interest rate and make sure you know to what time period the rate applies. Also, know what you have to do to get another good rate when that time period ends. There is usually a window of time during which you must take action. Often if no action is taken, the cash begins to earn a lower rate.

The state of the union in which 401(k) funds are custodied does not matter. You just need to make sure you do a rollover into a "Rollover IRA" or a "Traditional IRA." Make sure the rollover moves directly into the IRA so that it is not booked as a distribution to you, causing a taxable distribution. IRA contribution limits do not apply to 401(k) rollovers.
Michael A. Masiello:
expert info »
Good questions. Yes, you can deposit IRA's in a bank account, savings/CD's; however [this is] not recommended. True, no risk of default, but no real return either. If the bank is paying 1% [interest] (being generous here), it would take 72 years to double your money. Although risk is part of the investing equation, over time you should be rewarded for the risk. If properly diversified, [a] Large Cap stock mutual fund is worth considering. Regarding IRA rollovers, yes you can roll from a 401(k) to an IRA regardless of states involved. Make sure it's a trustee to trustee transfer.
Jerusha Ramos:
expert info »
Think of an IRA as an envelope that holds investments. You can put anything you want in the envelope. It can be any kind of investment. Therefore it is possible to invest your IRA so that not only is the principal [is] guaranteed but you have a guaranteed fixed rate of return. This rate of return is historically lower than investing in products with a variable return.

You can transfer assets from a 401(k) into an IRA at any time after you are no longer employed by the company offering the 401(k). This is called a rollover. There is never a penalty to transfer, but care must be taken in how the assets are received. The money can go directly to the new IRA account as a check made out to that financial institution for the benefit of the client. This is the safest way to avoid a taxable or penalty situation. Otherwise, the money can be sent directly to the client, but in that case the client MUST sign the check over to the financial institution and deposit the check with them. There is also a time limit during which this must be done. If the client deposits the money into a personal bank account, the IRS will consider that money as income, which creates a taxable and potential penalty situation.

Another thing to keep in mind when rolling over a 401(k), let the 401(k) provider know that the money will be transferred into an IRA. Otherwise, if they have a rule to withhold a certain percentage to cover potential taxes, they will keep that percentage of money rather than send all of it.

Lastly, an IRA is an Individual Retirement Account and treated the same way as a pension or 401(k) is treated by the IRS. Rollovers have no limit to the amount of money that can be transferred, and the annual contribution limits do not apply since it is not a contribution but a transfer of an existing account.
Joan Koonce, Ph.D:
expert info »
An IRA is an account, not the investment itself. You can invest the money in an IRA in a variety of savings and investment instruments, so the answer is yes, you can put money in an IRA into savings instruments such as CDs, money market accounts, etc. You can roll over amounts from an employer's qualified retirement plan for its employees into a traditional IRA. The rollover contribution cannot be deducted on your tax return, but must be reported on the return.
Jeff Kyle:
expert info »
Great question! There is a place to have an IRA that is NEVER at market risk (never a loss of premium) & that is in a fixed annuity. You can do a direct transfer (from institution to institution) and it will be a non-taxable event! The tradeoff is that the interest rates are not "sexy", but you can ONLY accumulate & never lose either principal or earned interest! Good luck!
Gail V. Marquet:
expert info »
401(k)'s can be transferred into either a new IRA or an existing one without penalty. Investments in an IRA can vary depending on the fiduciary handling the IRA. The best choice would [be] to meet with a financial advisor who has the heart of a teacher and can explain all the options available and help the individual select the best options for their situation.

[Editor's Note: A fiduciary is "An individual, corporation or association holding assets for another party, often with the legal authority and duty to make decisions regarding financial matters on behalf of the other party," according to The questioner might find of interest the Investment Company Institute’s (ICI's) publication The Role of IRAs in U.S. Households’ Saving for Retirement, 2009. The ICI's Web site is at]
Gary Silverman, CFP®:
expert info »
It is a common misconception that an IRA is some sort of investment. An IRA is an account into which investments are placed. Where you open that account will often dictate what types of investments are available for it. If you open up an IRA at a bank, a lot of times a CD will be recommended. At a brokerage, a mutual fund may be suggested. With an insurance company, an annuity might be mentioned. In other words, you can put a wide variety of investments into an IRA from something as safe as an FDIC-insured savings account to a mutual fund that only invests in China, and just about everything in between.

As it's late in the day for me, I'll let someone else deal with the details of the 401(k) questions, but the short answer is that when you leave your employer, you can pretty easily transfer your 401(k) money to an IRA. The annual limit [for contributions to an IRA] doesn't apply; that's for new money, not a transfer.