Expert: Paul Henneman - 5/1/2010

Question
I'm a 42 year woman with a very modest amount of money in my 401K account. I no longer work for the company in which the account was established and have not contributed to the account in several years. I want to start building this account up again but I'm not sure where to start since I'm now working for a company that doesn't offer 401k. Also I think the funds I initially chose are way too conservative given the amount of time I have left in my working career. Your suggestion is greatly appreciated.

Answer
Lisa,
  Thank you for your question!
It sounds like you need to roll your 401k into a ROTH IRA account. A 401k is administered by your employer, so if your current employer does not offer one, then you don't have a way to begin contributing to it again. However, an IRA account works much like a 401k.  There are two different types, a standard IRA account and ROTH IRA account.  They do differ in how taxes are applied.  If you roll into a standard IRA, you can tax deduct your contributions each year. You can contribute up to $5,000 maximum each year. With the ROTH IRA, you cannot take the tax deduction each year, but when you begin withdrawing for retirement after age 60, you don't pay income tax on the withdrawls.   There is an income limit for the ROTH IRA, which varies depending upon if you are single or married. If you make more than the income limit, you cannot set up a ROTH IRA.
   Just like a 401k, the IRA serves as an account type that you can buy and sell investments within.  Consider it a self administered retirement account, run by you instead of your employer.  It has the added benefit that you can invest in just about any stock, mutual fund, ETF, bond, or other such investments. 401k's are limited to the investments that your employer has set up, usually a fairly short and limited list.
   The IRA account can be set up through any online trading service if you want to control the investments yourself. Some such services are TDAmeritrade.com, Scottrade.com, or ETrade.com (there are many others). You can also set it up through an investment service that will actually manage the funds for you. Such services include Fidelity, Charles Schwab, any of the large banks. Typically they ask what your goals are, and set up your account to follow a conservative, moderate, or aggressive approach. You have far less control this way, and it is for people that don't know much about selecting investments and do not want to learn. There are additional fees for this type of administration.

I hope this helps gets you started! You definitely need to look at moving the 401k funds into a ROTH IRA or IRA account.  Please do not hesitate to follow up with me if I can be of any additional service,

Sincerely,
Paul Henneman
President
ValuEngine Inc