Answers and Guides from Top Financial Advisors

Problems with tracking down a previous advisor is one of the best reasons to roll that money out of the plan as soon as the relationship has terminated. If you have not been receiving statements from the current provider, chances are that have been looking for you also. Call or email your previous employer's H.R. department and ask for contact information for the current provider. That should start the ball rolling. Remember you do not have to cash in the plan. Those funds can be rolled out to your current employer's plan or to an IRA.

The answers above have all made great points. It is ok to own your company stock either in a 401(k), your own personal account or some type of employee stock plan. You need to be focused on how much in percentage terms it represents in your portfolio. The guidance of between 5% and 8% is sound. I always tend to focus on the conservative side of 5% or less. Barry made an excellent about you are reliant on your company to pay your salary and to own your companies stock does concentrate some of your financial future in one company. If you are optimistic about your companies future I would suggest owning a small percentage in your company. Some companies offer discount stocks plans which might be work checking into.

There is no magic number, but don't over-diversify just for the sake of diversification. Invest in things that you understand and pay attention to price. The market is dynamic and there are times when it will be favorable to invest abroad and times when it wont be (even if you're a long term investor). If you're not a professional investor spending all your time looking for opportunities in shifting capital markets, then you might be better off considering staying more heavily invested in core areas of expertise (for instance your industry or your community). Unfortunately proper investing isn't about taking a set it and forget it approach. Understanding the investment environment takes a lot of time and energy. There aren't shortcuts.

Amelie,

A simple way of looking at this is to remember that your current income (your job) is essentially invested in your company and if you invest in your company stock for your retirement, your future income is also invested in that same company. May be a few too many eggs in the same basket regardless of your employer's growth potential.

I am not a fan of wrap fee programs, if that is how you would be doing this. Fees tend to be high, and for some reason, performance often seems to come in less than advertised. You get a ton of confirmations, and 1/5 of your money with one manager is not enough diversification. The idea of customized management is a near-myth unless you have millions to invest.

The CANSLIM program has a long history but it is pretty aggressive, focusing on the highest momentum stocks after they have had big moves already. If you go ahead, make sure this approach is something that you are comfortable with and fits your investment situation and personality.

I would rather you did no-load mutual funds with a fee-only adviser.

David, the short answer is that defined benefit plans have rules distinctive to the plan that dictate when and if, you can make a lump sum distribution. The really, really, good news is that the plan is advising your mother-in-law that she needs to take action. So long as one of those actions is to roll it into an IRA, she should do so.

She should follow the instructions on the letter, or if she has questions,call the sender of the letter. It is most likely the plan administrator.

She does not want a check written to her; that would be a taxable event. Rather, she would open an IRA, or Roth IRA, and then have the monies either sent directly to the new plan, or to you written to the custodian of the new plan. It sounds like it is getting complex, but as you start completing forms, you will see the options I am talking about, and it will flow into place.

As you may be aware, if you open a Roth, you will have to pay taxes on that money as taxable income. As she is unemployed, it could be very little, or possibly no additional tax. If the father-in-law is earning income and they file jointly, that needs to be considered for taxation purposes.

She cannot open a 'joint' IRA, but they can both open separate ones. The father-in-law, can however, contribute to a 'spousal' IRA with proceeds from his income even though she has no income.

Hi David! Be sure to read the letter she received carefully. It should outline the options for what she can do with the money. Depending on the disposition of the plan, she may have the option to leave the funds there, cash out the account, or move the funds to another account, such as an IRA or Roth. Also, contact the HR department for her previous employer. They should have further details on what she is allowed to do. If you decide to move the funds to a new account, be sure that it is done as a direct transfer to the new custodian.

I agree with Curt - it's never to late to start saving, so encourage her to do so!

David,

Your question has two parts, I'll answer the second first. Your in-laws cannot have a joint retirement account (nor can anyone else). That does not stop either of them from starting a Traditional or Roth IRA as long as the family unit has "earned" income. There may be limits on how much they can contribute or to which type of account (Roth or Traditional) depending on their Adjusted Gross Income and Earned Income. Generally speaking, they each could contribute up to $6,500 per year since they are older than 50. They can name each other as beneficiaries which might get the results you were looking for from a "joint" account.

As to the first question, it is a little harder to say. Here is what the Department of Labor says, "If you are in a defined benefit plan (other than a cash balance plan ), you most likely will be required to leave the benefits with the retirement plan until you become eligible to receive them. As a result, it is very important that you update your personal information with the plan administrator regularly and keep current on any changes in your former employer’s ownership or address." DOL goes on to say, "If you are in a cash balance plan, you probably will have the option of transferring at least a portion of your account balance to an individual retirement account or to a new employer’s plan." So if your mother in-law's defined benefit plan is a cash benefit plan she MAY be able to transfer it to an IRA.

While you are correct that your in-laws are late to the game for retirement savings, it is never too late to start.

Hope this helps.

Curt

From the United States Department of Labor:

If an employee leaves after vesting in a benefit but before the plan’s retirement age, the benefit generally stays with the plan until the employee files a claim for it at retirement. Some defined benefit plans offer early retirement options.

http://www.dol.gov/ebsa/publications/wyskapr.html

However, it may be possible to take it with her... call the company's human resources department to see if she does have any options, ie, rolling it over.

If not, if she gets a job in the future, and earns more than 6,000 that year, she might consider withdrawing the funds if possible, then rolling them into an IRA account. The contribuiton should more than offset any tax on the distribution. If she rolls into a Roth, the funds will be taxable in the year of distribution.

Best Regards, Rod Miller

I would never recommend an individual investor dabble in stocks. It is very hard for even professionals to not only pick stocks but to make the timing decision of when to buy and sell. The best route for an individual investor is to take exposure to the market through pooled vehicles like mutual funds and/or exchange traded funds. We recommend taking a core-satellite approach to building portfolios where ETFs are held in the core and active money manager are added as satellites.

You first need to fill out a risk questionnaire and then determine what your asset allocation should be, that can then be expressed through different pooled investment vehicles in a global framework.

Is the tax code a mess? More like a weed that has grown out of control than a mess. It seems to be the place for politicians to reward their friends and punish those who do not follow their agenda. Because it keeps changing, it is a moving target that can never be conquered once and for all. The theme is add more tax to minority such as smokers, drinkers, the rich, etc. That way the politician still keeps majority happy and his job safe. A flat tax may be the answer but will probably never be passed because it would be too simplistic and would affect everyone including the majority of voters.

It sounds to me like you did not understand what you read, at least I hope that is the case. The advice you quoted (to buy stocks now and get into mutual fund later) makes no sense for the simple reason that you can buy stocks through a mutual fund. A mutual fund is essentially a professionally managed portfolio of stocks and/or bonds and/or other asset classes. The answer as to whether individual stocks (or bonds) might be better for you depends on how much money you have to invest, how experienced an investor you are, how comfortable you would be managing a portfolio of individual securities or mutual funds, and how effectively you could select and manage the investments in your portfolio. Based on your question, I'm guessing that you are not an experienced investor, so you would probably be best off investing in a mutual fund or a diversified portfolio of mutual funds with different investment objectives such as US stocks, foreign stocks, emerging markets stocks, US and foreign bonds, commodities, etc. You can get a lot more diversification and professional management with less money to invest by using mutual funds. You might also consider consulting with (and possibly hiring a financial advisor) to help you determine the most effective way to invest based on your individual financial situation, risk tolerance, time horizon, etc. If he or she believes that individual stocks or bonds would be appropriate for you, they can help you select and manage them.

Call the HR person or department at your former employer. They should be able to direct you to the plan provider. You might also look through you financial records to see if you can find an old statement. Alternatively, you might also contact a former co-worker and ask them for the provider's contact information.

In the truest sense, understanding a company means the following:

-How does it make money? -What is its business model? -Does it have a long term sustainable competitive advantage? -Does it have a wide and deep MOAT around it? -Will it able to sustain and grow its margins/profits over the longer term? -Will it's products always be in demand? -Is the company's business a fad? -Is it the subject of technological obsolescence? -Will the company continue to be professionally managed longer term, long after the initial founders are gone? -What is the company's culture and DNA?

Hope that helps answer your question, as it is the most esoteric and qualitative one to get your arms around.

As I'm sure you know, during the late '90's tech bubble, Buffett avoided buying tech stocks because he didn't understand them. As many investors learned the hard way, while tech fund managers pretended to understand the many tech companies with no real business models and justify their lofty valuations, Buffett was the like the little kid who shouted "The Emperor has no clothes." Buffett not only likes to invest in companies with business models he understands, he especially likes the ones that are easy to understand. Coke makes coke. Gillette makes razors. Pretty easy to understand. Of course, I remember when Peter Lynch loved Service Corp the funeral home providers. There's is an easy to understand, recession-proof business. Still, there was a time (during the go-go 90s) when its stock got cut in half about every week. So easy to understand and seemingly recession-proof does not guarantee indefinite profits.