You have heard the phrase "buy low, sell high", so you may be worried about rolling over a retirement account into your IRA while the market is down because you'll have to sell low. Don't be.
You don't need to worry too much about what the market is doing during a rollover because you are selling and buying investments quickly. If the market is low, you are selling low and buying low. If the market is up, you are selling high and buying high. The buy low sell high strategy is good advice, it just doesn't apply in this situation.
There is a small chance that you could lose or make money during the transaction since a rollover is not instantaneous and can take a few days to complete. However, it will likely be a small loss or gain that will make little difference to a long-term investor.
Direct Rollovers
You have a few options when rolling over a retirement account from an old employer. The easiest and safest option is a direct rollover, where the funds are transferred directly from the old account to the new account. You can roll over the account into an IRA or your new employer's retirement account (if they allow it).
You may even be able to do an in-kind transfer that doesn't require selling assets. You would simply transfer them from one company to another. This option is only available if the investments are available at both companies.
The easiest way to go about a direct rollover is to contact customer service at the company to which you plan to transfer the funds. They will be motivated to help you bring your money to their firm. Usually, there is a form you fill out with your old account information. They will help you create a new account to receive the funds. If you have both Roth and Traditional investments, you will need to roll over the Roth accounts to a new Roth account and the traditional account to a new traditional account.
Indirect Rollovers
Some investment companies will issue you a check if it is below a certain balance. You must not deposit the check if you receive a distribution check. Contact the company that you want to hold your new account and find out what their process is for an indirect rollover.
The check must be transferred into the new account within 60 days to avoid taxes and any penalties for withdrawing retirement funds before age 59 1/2. Your life may be busy if you have recently moved for a new job, but do not delay in figuring out how to deal with an indirect deposit because the timeline is quite short to avoid taxes and penalties.
Leaving Accounts With Old Employers
You might decide to leave an account with an old employer. While this is the easiest option, it is generally not advised. In time, you may forget about the account or not be able to remember the company with which the account is held. As a non-employee, you may also be charged higher fees for keeping your account there. Your employer may not inform you of updates to the plan if they do not have your new address.
Roth Conversions
The one time it might matter if the market is up or down is during a Roth conversion, sometimes called a Roth rollover, from a traditional to a Roth account. A Roth conversion may actually be quite advantageous during a down market. The amount you convert will be lower, so your taxes will be lower as a result. The subsequent growth during a market recovery will be tax-free growth in a Roth account. Be sure to talk to a tax or financial professional to make sure you understand the tax consequences of a Roth conversion or rollover.
Summary
However you decide to handle a rollover, remember that investing is a long-term goal. Minor fluctuations during a rollover will have a negligible impact on your long-term goal, but forgetting to transfer an indirect rollover could have some serious tax and penalty consequences that reduce your investment balance. Keeping track of where your investments are held will help you maintain your portfolio and see if you are on track for your goals. Consider strategic opportunities during a market downturn if it is beneficial to your financial plan.
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