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Condor Capital Management’s Take On Whether You Should Roll Over Your Old 401(k)/403(b) Plan

MARTINSVILLE, N.J., Dec. 08, 2015 (GLOBE NEWSWIRE) -- Did you know that over a lifetime, the average American between the ages of 18 and 44 will hold about 11 different jobs? Or that 38% of workers change jobs in a given year, according to the Bureau of Labor Statistics? While outliers to these figures exist, the point is that very few individuals will ever work for the same company their entire lives. If you have recently switched jobs or retired, you are faced with one of two choices concerning the money that you amassed in your 401(k)/403(b) account(s) at previous employers: Leaving your existing balance at the previous employer or rolling it over into an Individual Retirement Account (IRA). While the choice of whether or not to roll over your existing 401(k) or 403(b) may not be as obvious at first, those considering the option are taking note of the advantages to rolling over their old accounts when it comes to fees, investment choices, and account consolidation. In addition, if you have a significant amount of company stock in your 401(k) account(s), a tax-break involving net unrealized appreciation can actually be used to lower your tax burden when selling these shares. Considering the benefits of a rollover, it is no surprise that half of all affluent investors expect to roll their assets from an old 401(k) or 403(b) into an IRA over the next twelve months, according to Cogent Reports. Ken Schapiro of Condor Capital expands on several reasons why you should also consider a rollover and enjoy the benefits of a move into an IRA.

Fees and expenses are arguably one of the most important factors when considering a 401(k) or 403(b) rollover. While fees may seem like a small component on the surface, they can considerably deteriorate the value of an account over the long-term. For example, a study by Vanguard concluded that a $10,000 portfolio, managed over 25 years at an average annual appreciation rate of 6%, would be valued at around $74,500 if overall expenses (a combination of the advisory and underlying investment fees) were 1.00% annually. On the other hand, the study found that the same portfolio, under the same circumstances, would be valued at only about $56,000 if overall expenses had been 2.00%. This 1.00% annual difference in fees actually amounts to a difference of almost $20,000 on a $10,000 initial investment. While management costs of different 401(k) and 403(b) plans vary, most have higher fees than their IRA counterparts. An AARP study conducted in 2008 found that more than 80% of individuals invested in these plans were unaware of how much they were paying in fees to manage them. Therefore, it is extremely important to consider that 401(k) and 403(b) accounts have administrative costs, which can be avoided in an IRA. In addition, some of these plans will add an additional maintenance fee for those individuals who are no longer employees. Taking only fees and expenses into account, rolling over a 401(k)/403(b) account into an IRA appears to be a smart financial move.

There are even more benefits; investment availability should also be considered when making the choice of whether or not you should consider a rollover. IRAs can offer a significantly larger number of investment options than a 401(k) or 403(b); in an IRA, you can invest in a greater variety of options, such as individual stocks, bonds, mutual funds, and ETFs. On the other hand, most 401(k) and 403(b) plans provide limited options that may very well lack choices in important categories of the stock and bond markets. In general, IRAs allow more flexibility to help better align an investment strategy with your personal investment goals and objectives.

IRAs are also advantageous because they allow for the consolidation of many accounts into one. To many investors, holding different investment accounts can be confusing and difficult to manage. Furthermore, making important adjustments to the portfolio, such as rebalancing the asset allocation, is much easier when the assets are consolidated in one account. With that said, rolling over multiple 401(k)/403(b) accounts into an IRA can save you time and money when it comes to your investments.

It is worth noting that if you have appreciated company stock in your old 401(k), you may benefit from a strategy around net unrealized appreciation (NUA), which is the difference between the cost basis and the market value of your shares, to reduce your tax burden. This strategy involves moving the company stock through an in-kind, lump-sum distribution into a taxable account instead of rolling it over into an IRA. This can be done after death, disability, reaching the age of 59 ½, or separation from the employer. The prime benefit of using this strategy for appreciated stock is that you can avoid paying taxes on the entire current value at your ordinary income tax rate. Instead, you would pay ordinary income tax only on the cost basis, and then pay long-term capital gains taxes, which is typically at a lower rate, on the net unrealized appreciation (the difference between the market value and the cost basis) when the assets are sold, so long as they were held for more than one year. Note that breaking certain stipulations to utilize this strategy may lead to a penalty by the IRS.

For individuals with one or more 401(k)/403(b) accounts, it is important to recognize the benefits of using an IRA. Rolling over your existing one(s) into an IRA can reduce fees, significantly increase investment options, and simplify the management of various accounts. Rolling over an existing 401(k) can also reduce the tax burden of owning company stock given that certain conditions are met. While rolling over one or several old accounts may seem like a daunting task, the benefits mentioned above make the process worthwhile.

Condor Capital Management

Founded in 1988, Condor Capital Management is an employee-owned, SEC-registered investment advisor based in Martinsville, N.J. employing 15 professional and support staff. Since Condor is a fee-only investment management firm, its fees are based on portfolio size, not sales commissions or number of trades. For more information on Condor Capital Management, please visit www.condorcapital.com or call 732-356-7323.

Contact: Ken Schapiro, info@condorcapital.com

Source: Condor Capital Wealth Management