Splitting your rollover: double your flexibility - August 19, 2009

Considering a rollover of your 401(k), but debating your choices for where to set up your rollover account?

If you’re considering whether to place your rollover with a discount broker you already use and like (for easy stock market trades), versus setting it up with a self-directed IRA custodian (so that you can invest in alternatives outside the stock market), there’s something you should know: you may not have to choose at all. Instead, you can split your rollover into multiple rollover accounts — even if your 401(k) provider requires that you roll your funds over to a single destination account.  To split your funds, roll your entire 401(k) balance into a single IRA first, then roll a portion from there to your second account at another custodian.

Some advantages to splitting your rollover:

  • If you have a low-cost discount broker you use for stock trades, you can place some of your funds with that brokerage to manage your retirement stock portfolio at the lowest possible cost — without restricting your entire portfolio to public securities;
  • Establishing a second account with a (truly) self-directed custodian like Pensco, Sterling Trust or Equity Trust allows you to invest more flexibly. For example, you can invest in real estate, or trust deed investments like we offer at Sterling Pacific Financial;
  • If you’re approaching retirement age, you might find it useful to have multiple accounts to optimize your distributions;
  • Using multiple accounts also permits assigning different beneficiaries to each account — which could greatly simplify transferring assets to your heirs.
  • More flexibility in future rollovers, since the one-per-year limit would apply to each of your accounts individually.

Bottom line: don’t let your 401(k) plan’s restrictions determine your rollover strategy.  Even if your initial rollover must be to one destination, you can still split your retirement assets across multiple account types, to take full advantage of all the investment opportunities available to you and achieve meaningful diversification of your retirement funds.


Related links:
Choate’s Notes for Financial Advisors

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