Rollover an Old 401k To Trade Stocks

Over the past few weeks I've been doing a lot of financial planning. If you've been following along with my blog posts you know that we now have our 401ks rebalanced, contributions bumped up to 15% and established new Roth IRAs. The only thing we have left hanging out there is an old 401k from my wife's prior employer. If you have an old 401k sitting out there also, or even if you don't, read on because you might find yourself in this situation one day and will hopefully end up better informed on what to do when the time comes. Bear with me on this, as it may be a bit lengthy of a post, but it is one of the best things I've ever done when it comes to stock market trading.

Generally speaking, you have 3 main options with an old 401k. You can leave it where it is, transfer it over to your 401k with your new employer or transfer the account into a Rollover 401k with another firm.

If the 401k company allows for it, you can leave your money where it is and do nothing if you leave an existing job. Many times if the account is under a certain amount, they may require that you move the account out. Don't be tempted to cash out the account, you will have to pay taxes, penalties and fees, not to mention losing any future long term growth and interest. Also, if you do keep your account there, make sure that you won't be charged any inactivity or low balance type fees due to not having any more regularly recurring contributions. I'd say this is an ok option if you won't incur any new fees, are satisfied with your current fund choices and rate of return and/or are in a transition to a new job and want to weight your options before making a decision. Additionally you may not have a 401k available in your new position, might be between jobs, or whatever the case may be. Just don't forget the account is there and keep track of it every so often to make sure all is well.

The second option would be to transfer the old 401k over to the new 401k, assuming you are transitioning over to a new position with a company that also offers a 401k. This is a good choice if you have a better selection of funds to choose from in your new account vs the old one. Additionally, if the fund choices have better long term rates of return, lower fees and wider variety, transferring the funds over to the new account would provide better opportunity for future growth.

The 3rd option is one that you might not be aware of. You can transfer your old 401k account over to a discount broker like Options House and open a Rollover 401k. With a Rollover 401k, you would first open the new account with the location of your choice and then call the 800 number of your old 401k and tell them that you want to do a '401k Rollover' to your new location. In that way you would not have to report the transaction on your taxes to the IRS and you would not incur any fees or penalties since it's just a transfer of accounts. Almost all of the Brokers will also reimburse you for any fees related to transferring an account up to $150, so there are usually no downside to moving your account where you want it to go.

The exciting part is that you would then be able to buy and sell stocks, bonds, mutual funds, options, futures, etc. You would no longer be limited to choosing from a small list of specific mutual funds that the 401k companies typically offer. For me that has been a great way to trade.

In a regular cash investment account, you normally have to keep track of all your buys and sells over the course of a year and have to record everything that you've sold and your gains or losses in a separate form on your tax return. If you actively trade, that could be pages and pages of transactions and quite a pain. For me, that took a lot of the fun out of things several years ago. With a Rollover 401k, that is not the case.

A Rollover 401k is handled the same way as a regular 401k. You are taxed on the money at whatever your current income tax rate is when you start to take withdrawals at retirement age. You are not taxed on individual gains and losses when you buy/sell stocks now. In other words, you don't have to keep track of anything throughout the year and come tax time you have nothing to record on your taxes. You still have to pay the commission fee to buy and sell stocks, but that just comes out of the same account and you have no administrative paperwork to deal with.

Of course before trading any $ of your own, I would highly recommend you try free Virtual Trading for a few months first. Most places allow you free Virtual Trading on their actual website you would use if you signup for an account, a good way to get familiar with a particular company and try things out first.

If you have any questions at all on how to get started or anything specifically related to trading, let me know. I usually trade a combination of options and stocks. If you're looking for a place to rollover your old 401k, I recommend opening a rollover 401k/IRA with Options House.  Stock trades are only $3.95 and they have a current promotion offering 100 free trades and they will cover any transfer fees up to $125 as shown below.  Find out further details here or click the image below. 



Do you actively trade stocks or options? Do you have any good investment shows/websites that you enjoy? Please share some here, as I'm always looking to add to my trading knowledge!

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Saving Money Online

If you're like me, you always search for deals, especially when buying online. Coupons and/or promotional codes are a must. There are a ton of sites that offer coupon codes, some are definitely better than others. I usually just search Google for 'Kohls coupon codes', for example, and several sites always come up towards the top.

The one I have the most luck with is Retail Me Not, usually followed by Deal Catcher and Tech Bargains. But I'll also click a few more just to make sure I'm getting the best % off deal. You don't have to type their address directly, Google search works fine. Kohls for example almost always at least 15% off and sometimes they allow you to stack more than one coupon.

In addition, I'll usually go directly to two other sites, SlickDeals.net and FatWallet.com They are great places to search for deals on specific items, but you can also search there for coupon codes and general discounts as well. They have great forums on specific topics like Travel Discounts, Laptops, a Hot Deals section, etc.


In addition, FatWallet is great because they have a Cash Back section. You just go to their site, sign up for a free account and if you plan to purchase anything from a particular store, check their Cash Back section to see if they have that particular online site listed. Most are on there. And most times you can use any online coupon codes in addition to the cash back.

For example, they currently have 5% cash back for the Disney Store. To get 5% cash back, first I recommend you use Internet Explorer, even though I prefer FireFox. IE works better with FatWallet and be sure to enable pop-ups for FatWallet prior or when prompted. Then login to your FatWallet account, click on the Cash Back section, go to the Disney Store and click on Shop Now. If it worked right, you will get a pop-up window saying that you're on your way to getting cash back.

That pop-up window needs to be open to get the cash back. You can minimize that window, but do not close it. Then make any purchases as you normally would and that's it! After your purchase is confirmed, which usually takes less than a few weeks, the 5% cash will show up in your FatWallet account. You can request the $ at any time and there is no minimum if you want it deposited with a Pay Pal account. If you want them to send you a check, there is a $10 minimum. I use the Pay Pal option and it works great.

Just one more way to save a few extra $$'s! It looks like a few others are out there also offering cash back, including Ebates and BigCrumbs.com Check em all out and see which one works best for you!


What tips/tricks do you have to save $ when shopping/conducting business online?

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Financial Checkup

If you're like me, the start of a new year brings some reflection back on the events of the prior year, hopefully lots more good memories than bad, perhaps you set some goals, accomplished a bunch, but still have lots more to look forward to and some adjustments to make. For me that also means time to check out the 401k and see where things are at.

Most financial sites recommend doing a thorough check of your 401k and to rebalance at least annually, which is what I usually do. All rebalance really means is to check and be sure that the percentage of money you have going to the various funds you are invested in matches their original targets. For exampe, if you initially wanted 80% in stock mutual funds and 20% in bond mutual funds, make sure that is still where you are at.

If you invest all your money in one of the life-cycle target date funds that change your asset allocation for you as you approach retirement, then they take care of the rebalancing for you. That usually comes at a cost, since there are increased management and trading costs, but I'll talk about the pros/cons of certain mutual funds and how to pick between funds in a later post. If you are invested in anything other than 1 target date fund, read on...

Going back to the previous example, if your initial target allocation was 80% stocks/20% bonds, at the end of a year you may have ended up with 90% stocks and 10% bonds due to a higher rate of return for stocks. If your investment goals and risk level didn't significantly change over the course of the year, usually you can change your percentages back to 80%/20% quite easily.

Most of the major sites like Fidelity, Wells Fargo, etc. offer the following 3 options:

1. Change your investment elections; This option will change what funds your money goes into for any FUTURE contributions only, anything existing will not change.
2. Exchange money between funds; This option only allows you to manually move money from one specific fund to another.
3. Rebalance; This option will move money from multiple funds into the funds you specify, in the percentages that you desire, basically doing things for you. 

The 3rd one is the option you would want to utilize.

If you want to go back to 80% stocks and 20% bonds and you have the option to utilize the same funds that you have been, you just put in the correct percentages next to the individual funds and click rebalance. Then generally the following business day your account would show that 80% of your money is allocated to stock funds, 20% bond funds and you're ready for the new year. It can be that quick and painless.

The only caveat is that some funds have a 'short term redemption' fee for any funds taken out within a certain number of days after they were put in, usually 30, 60 or 90 days. If you are making regular contributions to your 401k over time, that is most likely a very small amount, probably a few dollars in most cases. I was concerned about that initially, but a quick phone call to the 401k company assured me it would be less than a few dollars and they were correct. In my case it was $1.80 and they tell you that prior to you pressing the button to rebalance.

If the situation above applies to you, great! Hopefully you learned a thing or two and can feel a bit more confident if you decide to go through a similar process. My situation was a little more difficult this year.

This year was a bit more time consuming for me. My 401k company changed several of the funds that I was invested in over the course of the year and they moved my money into 'similar' new funds of their choice. You really need to keep a close eye on that. In many, but not all, cases the new funds will have similar holdings as far as the individual stocks and bonds which they own, however they can have quite different rates of return and fees associated with them.

In case you are not aware, even if you do not pay money out of your pocket per se, to purchase the various mutual funds available in a 401k, you are paying fees in almost all cases, sometimes very large ones that dig into your rates of returns over time. Even no-load mutual funds have management fees and other expenses that usually range from the 1% range on the low end to upwards of 2-3% or more. Just be aware of that and in a future post we'll discuss how to weed through various mutual funds to make a more informed decision.

In addition to going through all of the funds my 401k now offered, I also wanted to change my asset allocation. My opinion of the market changed and I wanted to remove my exposure to bond funds. My exposure in that area was already very small, so it wasn't too big a deal.

I had money in 8 or 9 different funds prior to the rebalancing/reallocation. I wanted to narrow that down to 4 funds only. If I had my choice, I would currently want to put a good portion into a financial stock based mutual fund, because I have been positive on that sector the past few months and continue to think that sector will do well in 2011. Unfortunately, as with most company 401k's, your options are pretty limited and I do not have that choice available in this particular account.

I ended up going with 4 funds that were categorized as the following: Small Cap Growth, Mid-Cap Growth, Large-Cap Growth and Emerging Markets. Once I had narrowed it down to the 4 mutual funds that I wanted, the rebalance was painless. I put 25% into each of the 4 funds and hit enter, the next day my account was rebalanced. I then went back and picked option 1 above to setup all of my future contributions to go into those same 4 funds in the same 25% for each and I was done!


Don't take my particular asset allocation or comments as a recommendation by any means, it is what I decided based on my age, risk tolerance and outlook for the market over the next year. I am not a financial advisor and I do not play one on TV, but I do like to talk finance and hopefully you'll find some useful nuggets above to at least help to make you a more informed investor if nothing else.


Here are some links for more info:

401k Rebalance
Choosing an Asset Allocation

I'd love to hear any comments, suggestions or any tips/processes you go through with your 401k to compare notes and learn a thing or two myself. I'm always looking to gain from the wisdom of others! Feel free to ask any questions as well and I'll be glad to try and find the answer or clarify anything that is not clear. Thanks!

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