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Take your 401(k) with you
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May 17, 2000: 10:35 a.m. ET
Don't let old loyalty prevent you from making the most of your savings
By Ed Slott
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NEW YORK (CNNfn) - The problems start when you leave your company. Retirees are much too loyal to the company that employed them for so many years. Loyalty is a good thing and in short supply these days, but when it comes to your retirement savings, your first loyalty must be to yourself and your loved ones.
Visit Ed Slott's irahelp.com
That means upon retirement -- or even changing jobs -- you should generally roll your company retirement plan money to an IRA account to take advantage of the estate planning and tax options available. Even though the IRS allows these tax benefits, most company retirement plans do not.
The same holds true for self-employed people with Keogh accounts. That money should be rolled to an IRA as well.
 Money in qualified retirement plans should not stay there after you leave the company.
The first thing many former employees will say when they are advised to roll the money to an IRA is that the company plan account is doing so well and "I don't want to touch it." That's a poor reason to keep money in your ex-company's plan.
If you rolled over to an IRA, you could have the identical investments in your IRA and work with a financial planner, or even manage them yourself rather than being forced to default to the limited company investment options. In your own IRA, you have the widest possible range of investment choices and can tailor those options to your specific situation.
It's time for you to take control of your retirement savings and not let your ex-employer dictate or limit your options. You'll also find that once you leave your company, any questions about your account must go through some "human resources" department, which rarely has any human qualities. In fact, you're usually looped into some computer phone recording maze and do not receive the personal attention you and your retirement savings deserve.
Now is the time to find a financial planner who works only for you and not for your company. You can have that by getting your money out of the company and rolling it over to your own IRA.
IRA stretchout
The biggest benefit to rolling over your company plan money to your IRA is the estate planning that can be accomplished by taking advantage of what is commonly know as a "stretchout IRA."
The stretchout is the ability for your retirement money to outlive you and be stretched over the life of your IRA beneficiary, who may be much younger than you. The IRS allows a younger beneficiary -- a child, for example -- to stretch distributions of the inherited IRA over his or her longer life expectancy, resulting in possibly decades of further tax-deferred growth on the account. The way to make the most of your IRA is to keep it growing tax deferred over the longest possible period.
This option is generally not available in a company plan. Why not? Company policy. The company can make its own policy regarding your retirement tax options. It is not the company's obligation to provide an estate plan for you and your family that they will have to administer and be responsible for.
In fact, they wish you would take your money and leave and stop bothering them. You see, you're only an ex-employee now.
Although the IRS allows this stretchout, most company plans do not and will force a full payout or a payout over some limited term, such as five years. If your child is the beneficiary of your 401(k), when you die, the company will usually pay out the entire IRA to your child, triggering a fully taxable distribution and ending any further tax deferral.
Most companies will not pay your child or other non-spouse beneficiary over the rest of their lives. Companies do not want to get involved in keeping track of all the descendants of their ex-employees. It would be a paperwork nightmare.
You should still roll over, even if the company tells you that they will let your beneficiary continue post-death payments. There is no guarantee of that. The company could change its policy, merge, get acquired or go out of business, which could also force a fully taxable payout and cut short the tax deferral period.
This will not be a problem if the spouse is the plan beneficiary, because a spouse can roll over to an IRA and name new beneficiaries. But a non-spouse beneficiary such as your child cannot roll over and that's the problem. Once your child receives the check, he or she can do nothing but pay tax on it.
If instead, the company plan were first rolled over to an IRA, then if you named your child as designated beneficiary of the rollover IRA, your child could continue distributions using his own life expectancy, gaining a 30 or 40 year stretchout, or even longer if it were a grandchild.
Another advantage to rolling over to your IRA is that you may then be able to convert your IRA to a Roth IRA. Your Roth IRA beneficiaries will receive the same stretchout, but with the Roth, your beneficiaries will be able to withdraw tax free for life. It's better than a lottery payout, which would be taxable and is much harder to acquire. A company plan can never be converted to a Roth IRA. It must first be rolled to a regular (traditional) IRA.
There are really only two reasons to keep the money with the company plan: federal creditor protection and borrowing ability. If these are big issues for you, then consider leaving the money in the plan. But be warned that your children may be stuck with a big tax hit. Otherwise, don't just sit there ... roll over! 
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