Rollover and stretch estate withdrawals
I missed the rationale for this, especially if the person was satisfied with the investment choices offered within the 401(k) and that no administrative fees were charged.
A: I recommended a rollover, not only because you'll have a wider choice of investments at most major no-load fund companies, but for estate planning reasons. You must name a beneficiary for your 40l(k) or IRA. Many 40l(k) plans provide for an immediate distribution to the beneficiary in case of your death. That deprives your beneficiary of the chance to stretch out withdrawals over his/her lifetime -- and some other neat rules which I wrote about in The Savage Number.
But IRA custodians are typically much better about allowing "stretch" withdrawals for beneficiaries.
Q: I'm 45, married, with 2 kids. Both my wife and I are retired. Our total family cash after-tax outflow is $250,000 per year. Excluding our two homes -- which are worth a total of $5,000,000 (mortgages have been paid off) -- we have $10,000,000 with 80 percent in the Vanguard Index 500 fund and 20 percent in the Vanguard GNMA fund. We also have a total of $500,000 in Roth IRAs.
Our goal is to continue our spending rate of $250,000 -- adjusted for inflation -- until we both pass away.
Here's my question: Do you think our asset allocation is about right in light of our goal?
A: That all depends on whether your income can keep exceeding your spending!
Seriously, you don't say how your IRAs are invested -- and I can't give you specific advice. But do check either Fidelity, Vanguard, or T. Rowe Price for their Monte Carlo modeling services -- designed primarily for those close to retirement.
Or if you're still in the accumulation phase go to www.FinancialEngines.com and sign up for a trial. That's the very best site to answer your question.
Q: I have three IRA funds at Scudder. I want the money to go into Ginnie Mae. Should I put the money into a Vanguard Ginnie Mae or go through a broker and buy them direct? If I buy them through a broker, can I reinvest the principle in the Vanguard Ginnie Mae?
I like the idea of an income check every month. Am I making more income by going through a broker? The amount is $27,000.
A: You should use a Ginnie Mae fund, not the individual securities -- and Vanguard is a fine place to do that. But since this is IRA money, make sure you have it transferred directly from Scudder to Vanguard (custodian to custodian) and do not take a check or it will be considered a taxable withdrawal.
Terry Savage is a registered investment adviser and the author of the newly published The Savage Number: How Much Money Do You Need To Retire? (256 pages, Wiley, $24.95).
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