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Anne Hasbrook,Financial Advisor. For Sacramento Area Appointments call (916) 454-2663

10 common mistakes people make with their 401k
and other retirement plan rollovers including CalPERS, 403(b)/TSA’s, Profit Sharing Plans, governmental 457(b) plans, Thrift Savings Plans, Sacramento County Retirement, CalSTRS, IRA rollovers, etc.

“ I’ve been helping people with their retirement accounts for more than 20 years and here are the common mistakes I’ve seen people make. This is to help you avoid the same mistakes.” – Anne Hasbrook, Financial Advisor, Sacramento, CA

Mistake #1: Missing a deadline. If your company’s been bought-out or you’ve changed jobs or retired – there’s usually a deadline where you have to get your paperwork in or suffer the default consequences – like receiving a fully taxable check in the mail. If you’ve missed the deadline and received a check – don’t panic – under normal circumstances the IRS gives you 60 days to put the money into an IRA. If taxes have already been withheld from the check you received – you will need to replace that amount or pay tax on it and maybe a penalty at the end of the year.

Mistake #2: Missing a Signature or Additional Form. It’s frustrating to have your paperwork sent back to you because you missed a signature or didn’t check a box. Read your paperwork carefully. Some “plan administrators” require a notarized signature from your spouse before they’ll process the paper work. Sometimes you may not even be notified at all that you’re missing something and your file sits on someone’s desk instead of being processed until you call to follow-up and see what the hold-up is. Have an experienced financial professional read over your paperwork with you and call the phone number in your packet if you have questions. Sometimes you’re given additional forms that you don’t need and it’s very confusing – so don’t hesitate to call your human resources department for clarification. Make sure your beneficiaries are accurate - especially if you’ve re-married. It will save headaches later.

Mistake # 3: Rolling your retirement account to a low interest-rate bank account that earns less than inflation. Bank accounts are good for your short-term emergency money or a temporary “parking spot” but not for your long-term retirement money. You’ve worked hard for this money and you need to know that this money will last through your retirement years. Meet with a
financial advisor to make sure your money is invested in a portfolio that will keep ahead of inflation in the long run. Be realistic about the cost of living and what to expect from different investment choices. Stop and think about inflation. Do you remember how much you paid for your first house or your first car and what you’d have to pay for the same thing today? Groceries,
gasoline, and medical bills continue to get more expensive as we get older and it’s important for your money to grow.

Mistake # 4: Putting all your eggs in one basket. Many people have had 100% of their retirement money in one stock – usually their companies. You don’t have to be a genius to watch the news and figure out that companies do go out of business and the value of your stock (and all of your retirement money) can be lost completely. Diversification means using a blend of different stocks, bonds and money market accounts to take advantage of potential growth of all different industries and lower your risk at the same time. Think of it like owning your own department store. If you only sold bathing suits you’d probably do well in the heat of the summer but lousy in the winter. If you diversified and sold all sorts of clothing and shoes and house wares for all seasons, you’d have the potential to have a more stable cash flow and less chance of going out of business. Note: Diversification does not assure an investor a profit nor does it protect against market loss.

Mistake # 5: Not rebalancing your retirement money at least once a year. If you’ve heard the phrase “asset allocation” it’s referring to the percentages of stocks, bonds, real estate and cash in your retirement portfolio - which should be based on your “time frame” and “risk tolerance.” If your stocks have grown exponentially over the years – your portfolio may be way out of whack for your current risk tolerance. On the other hand, if you panicked during a stock market crash and moved all your money to ‘cash’ it might make sense to revisit your long-term goals and re-balance your percentages into stocks and bonds along with the cash. Some accounts can do this for you automatically on a quarterly or annual basis at no additional charge. You don’t have to try this on your own - ask your financial consultant to help you with this.

Mistake # 6: Having unrealistic expectations about investment performance. Look at the long-term history (30 to 50 years) of the different investment types you’re looking at rolling over you’re retirement money into. If you have a good understanding of the history of stocks, bonds, and inflation – this could help you to weather the economic storms and not panic when the media tries to blow you off course.

Mistake #7: Chasing yesterday’s returns. If your brother-in-law is bragging about the ridiculous money he’s made on his tech stock (or the latest “flavor of the month” stock) don’t be tempted to jump in with both feet. Use good money managers who look for the next opportunity for
growth in all different sectors of the economy and world. Stick to the basics of diversification and rebalancing with your retirement accounts. If you have some “gambling money” apart from your retirement money – it may be OK to have some fun with a portion of that money. But treat your retirement money with respect and a long-term focus. Plan on living 30 to 40 years after you retire.

Mistake # 8: “Cashing-in” your retirement plan instead of rolling it over. It’s tempting to see the balance of your account and rationalize spending it on a car or a boat or something fun. Don’t. There are smarter ways to finance things. Call your local credit union. If you cash in your retirement account and you’re not age 59 and a half (IRS rules) you will have to pay a 10% penalty PLUS ordinary income tax on the money. In some cases, you’ll be losing almost half of the value of your retirement account to the IRS! Be aware that most employer sponsored retirement plans require a 20% tax withholding on your withdrawal if you withdraw funds.

Mistake # 9: Getting talked into cashing-in your spouses’ retirement plan after being widowed. When you’re recently widowed an under a lot of stress, sometimes well-meaning relatives and financial professionals will encourage you to cash-in your spouses retirement plans without knowing the full tax implications and your other options. Take your time. Don’t be rushed
into anything without getting both good tax and investment advice. I’ve seen widows who didn’t need the money yet, be talked into cashing in their husbands’ retirement plans and having to pay huge income tax bills for that year. The IRS allows for what’s called a “spousal rollover” which lets a spouse continue the retirement account as an IRA on a tax-deferred basis. This means you control when you’re going to pay tax on the money. Instead of being forced to and pay income tax on the entire amount of your deceased spouse’s retirement plan, you can keep the tax shelter of an IRA and not pay income tax on it until you start taking income from it. If you’re over the age 70 and a half, you’ll be required by the IRS to withdrawal a minimum amount each year, based on your own life expectancy, – but not the whole thing. Note: If you’ve been widowed and you’ve already cashed in your spouses’ retirement plan and just received a check – you have up to 60 days to roll it into an IRA. Check with the IRS and get help ASAP so you don’t miss the deadline.

Mistake # 10: Doing nothing. If you change jobs and or retire and do nothing with your retirement plan, you may lose track of the funds and have a real mess on your hands down the road. This may seem unlikely, but just when I think I’ve heard everything, I’ll hear a story about a company that wasn’t very good about sending annual retirement plan statements then got bought-out or closed down and somehow the retirement plan money was “lost” or tied up in legal proceedings or missing. The ex-employee is left searching for the money. If you take control and roll over your retirement money to an account you like with an experienced financial professional you trust, the odds are, you won’t be losing track of the money between now and when you want to use it.

Past performance is no guarantee of future results. Keep in mind investing involves risk of loss. Investment decisions should be based on an individuals own goals, time horizon and tolerance to risk. Diversification does not assure an investor a profit nor does it protect against market loss. Seek professional help for tax and legal advice. Tax laws change regularly and you can contact the IRS for up to date information and publications.
IRS phone: 1-800-829-1040.

If you’d like help with moving your IRA or rolling over your retirement plan and you live in the Greater Sacramento Area
- Call Anne Hasbrook at (916) 454- 2663 for an appointment to help you.


Copyright© 2005- 2012 Anne Hasbrook, Sacramento, California. All rights reserved. Re-prints allowed with written permission from Anne. This information is designed to help people make better decisions with their retirement money. This is not designed to replace good tax or legal advice. Consult a competent tax or legal advisor for specific tax and legal advice as laws change regularly. Securities offered through Investors Capital Corporation, MemberFINRA/SIPC, WWW.SIPC.ORG. www.SIPC.ORG
6 Kimball Lane, Lynnfield, MA 01940, (800)949-1422 Investment Advisory Services offered through Investors Capital Advisors, Inc. Anne Hasbrook Smith, California Insurance License #0827440. Licensed to do securities business in California. For an appointment call Anne @ (916) 454-2663