Expert: Gina Boykin - 6/26/2008

Question
Hi, Gina.
I am an ignorant nonprofessional when it comes to the subject of investments.  For the last 4 years I have had several accounts (totaling less than 200,000) at Fidelity Investments.  The accounts include a money market (funds and cash) from which we write checks; 401k; Roth IRA; two managed accounts (rollover ira and a joint account with my wife).  I have watched the total decline in the last year.  Part of that is because I became unemployed, and instead of adding to the account each month as we had been doing, we had to take some out to meet expenses.  Even so, some of the decline has been due to the market, itself.
I am tired of paying fees to watch my money disappear.  I am 63 and may not have time to ride any long market rollercoasters or ride out any long term bear markets.  My question is three-fold: 1)  Can I put everything I have at Fidelity into an online savings institution or money market (all cash)? 2) How do I do this?  I understand Fidelity does not charge exit fees.  3)  If I wanted to leave the money at Fidelity, could I have everything put into an all-cash money market and thereby eliminate fees?
I am sorry for my long windedness, but I wanted to give you an accurate picture.  I know the money market/savings account won’t grow much, but I think I had rather have the security of keeping what I have than the risk of  “possibly” increasing my accounts.
I thank you in advance for any help/info you might provide for me.


Answer
Your options are based on the type of account you currently have. I'll start with the money market.

If you have a money market account ("MMA"), this can be easily transfered online to any other checking or savings account at Fidelity or with another financial institution.  If you think you may switch to another bank, check the savings/MMA rates at www.bankrate.com.  Only work with an FDIC bank, so that your money is insured.  Once your new account is set up, you should be able to easily transfer the money online.  As a part of the account set up, the bank usually asks you to "link" another account that will provide the initial deposit.  You can then make transfers with the click of a button.  Also, since you have checks, you can easily visit your new bank and write a check for the full amount of your old account balance.  If you keep the money at Fidelity, you can easily transfer money online by signing into your account.

If you have a money market fund, this is an investment account.  This is a mutual fund that invests in very safe things such as government securities and certificates of deposits.  I would not think that money in a money market fund is losing money, but it is probably growing at a very low rate (basically the same as CD or money market account rates).  To transfer funds, you would need to sell your fund shares.  This money will then sit in your account as cash.  Once it's cash, you can move it to your account that has check-writing privileges at Fidelity.  If you chose another bank, you can then just write a check or transfer online like I mentioned above.

Money in a 401K or rollover IRA can be withdrawn now, since you have met the mininum age requirements.  To withdraw money, you have to first sell your investments so that the money is in cash.  Remember, money you withdraw from a 401K or a Rollover IRA was deposited with pre-tax money. That means you will pay ordinary income taxes on everything you withdraw.

I would not advise withdrawing the entire amount at once, but you can sell all of your shares and move the money into a money market fund.  As I said earlier, these funds are very low risk, with very low rates of return - but that's what you're looking for, right?  As you need money, you can transfer the amount to cash, and withdraw.

The Roth.  To withdraw from the Roth, you will have to sell your shares that are invested in stocks, bonds, mutual funds, etc.  The money will then be in "cash" which you can transfer to your account that has check-writing and then transfer to any other account by wire, online, phone, check.  Since you do not have to pay income taxes on the money you withdraw from the Roth, you can move the entire amount into a savings account/MMA/checking account.

If you have a tax advisor, consult him or her about the best amount to withdraw from each of these retirement accounts each year.  As a general suggestion, you should try to only withdraw an amount from your 401K and/or Rollover IRA that will keep you in the same tax bracket.  For example, if you withdraw $20K, the entire $20K is considered "income" when you file your tax return.  If you or your wife work during the year and adding this $20K puts you in a higher tax bracket, withdraw less (like $10K).  If you really need $20K for the year,  you can get the other $10K from your Roth IRA. (this may be confusing, but you can talk to the person who does your tax return for more details).

Is your joint account invested in stocks, bonds, mutual funds? If so, you can sell your investments, and transfer the money into your savings/MMA/checking account.

For all of the investments you need to sell, you can do this by phone or online by logging into your account.

You should end up with 3 accounts.  
(1) A money market account or checking account which you use for living expenses
(2) A Rollover IRA (ask Fidelity about rolling over your 401K to your existing Rollover IRA - there should be no fees associated with this, and it will be simpler for you)
(3) Savings.  You should only have the money you need for living expenses for the next month or two in the MMA/checking account.  The remainder should be in a savings account or in a certificate of deposit.  Since you will be transferring money from several accounts, and you won't need it right away, you may be able to get a better interest rate by putting the money in a 6-month or 12-month CD.  Certificates of deposits are insured just like your savings.

Last note - remember that FDIC only covers the first $100,000.  If your savings account is more than this, you should move part of it to another bank.