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 Today, you can get anywhere from $50 to $2,500 for rolling over a
401(k) into an Individual Retirement Account, or just by moving an
IRA from another financial institution.
But since banks are not in the habit of giving away money, you need
to ask: What is the catch?
IRA providers use cash incentives, which are cheaper than
advertising or direct mail, to acquire new customers. The latest
marketing twist comes from Fidelity Investments, which is offering
an "IRA Match" program to new and existing customers who transfer a
Roth, traditional or rollover IRA to the company. Rollovers from
401(k)s are not eligible.
Fidelity will match your contributions up to 10 percent for the
first three years that the account is open, although you would have
to roll over a whopping $500,000 or more to get that level of match.
For most people, the match will be much smaller. A rollover of
$50,000, for example, would qualify for a 1.5 percent match in each
of the next three years. That is worth $260 over three years if you
max out your annual contributions at $5,500, or $290 if you are over
age 50 and eligible to make additional $1,000 catch-up
contributions.
Fidelity is pitching this as the way to encourage higher levels of
retirement savings, the way many employers make matching
contributions to workers' 401(k) plans.
"When you look at what really works in the retirement space, you can
see that the employer match is a major factor driving
participation," says Lauren Brouhard, Fidelity Investments' senior
vice president for retirement. "We wanted to take an element of what
works in the workplace and bring it to the IRA."
Similar deals abound. For example, Charles Schwab Corp frequently
runs promotions offering up to $2,500 for opening a new account,
including rollovers from 401(k)s. Ally Bank will pay a $100 bonus
for rolling between $25,000 and $50,000, and more for larger
rollovers. Just do a Web search for "IRA cash bonus" to see how
pervasive the practice has become.
Should you take the money and run? Perhaps, but do not let the cash
distract you from more fundamental considerations.
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For starters, do not roll funds out of a workplace 401(k) plan into
an IRA if it charges higher fees. You should also make sure that the
new provider offers the type of retirement investments you are
looking for.
If you are rolling over to a mutual fund or brokerage company, the
cardinal rule is to make sure your new provider does not earn back
the bonus by parking you in high-cost active mutual funds or managed
portfolio services.
"It's a free lunch, but not if you yield to the temptations," says
Mitch Tuchman, managing director of Rebalance IRA, a wealth
management firm that offers low-cost IRA portfolio management. "You
have to avoid falling prey to the sirens of active management."
Instead, manage your portfolio yourself by creating a portfolio of
inexpensive passive index funds or exchange traded funds, which are
available through their providers' brokerage services.
To illustrate, he suggested a portfolio of four Vanguard ETFs whose
fees are each below 20 basis points: Total U.S. Stock Market, Total
International stocks, Total Bond Market and Total International
Bond.
(The writer is a Reuters columnist. The opinions expressed are his
own.)
(Editing by Beth Pinsker and Lisa Von Ahn)
[© 2015 Thomson Reuters. All rights
reserved.] Copyright 2015 Reuters. All rights reserved. This material may not be published,
broadcast, rewritten or redistributed.
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