Is it possible to time a rollover?

September 30, 2008 4:31 PM

A crazy financial question about the timing of my 401k rollover to and IRA in light of current economic events in the US. Is it even possible to time a rollover?

I held a 401k at my previous employer (invested in American Funds if it matters). I filled out the requisite paperwork to get my 401k released. I received the pay out check on Friday of last week for the full amount of the 401k. My final task is to mail this check to Bank of America where it will be rolled over into an IRA. I think by default the IRA is set up to reflect the same investments I had with American Funds - though if I wanted to change that before I send the check in I think that I could. I'm running on the assumption that the check I hold in my hand is "frozen" in the sense that although the investments I held at American Funds may have dramatically dropped yesterday, the amount on the check remains fixed.

I'm in a gray area here and out of my element in terms of investment knowledge. Should I hold on to this check until Congress passes something and wait for stocks to rebound? Should I deposit it regardless of what happens? Should I change up anything at BofA before I send the check? Am I even asking the right questions?

posted by quadog to work & money (8 answers total)

Is the check made out to you or to Bank of America. I think you want to make sure the check is made out to them to avoid getting hit with a distribution penalty.

Most people can't time the market, they just hope that over time it will generally go up, so it's better to be in it than out.
posted by willnot at 5:26 PM on September 30, 2008

Yes, the check is made out to BofA so no worries there with penalties.
posted by quadog at 5:43 PM on September 30, 2008

You have 60 days before you get socked with some crazy-ass penalties, so chill.

Are you rolling it into a traditional IRA or a Roth? If it's a traditional IRA, it doesn't matter so much. Just do it.

However, if you're rolling it into a Roth, it becomes taxable income on the total asset value on the day you did the rollover, payable next April 15th.

Just yesterday I rolled what was left in my traditional IRA into a Roth. Those assets were decent stocks that had gotten pretty well hammered in the last couple months. They will come back, eventually; but I feel like I got away with something, because I sneaked them into my Roth when they were marked at a very low value, and so only had to pay income tax on that amount.
posted by ikkyu2 at 6:03 PM on September 30, 2008

It sounds like your question is whether BofA is likely to go belly-up in the near future. Probably not, but who the hell knows any more?

The important thing is that there is protection. If you put the money into investments, BofA's investment arm will just be the custodian for those investments.
posted by megatherium at 6:10 PM on September 30, 2008

The key is to get it into an IRA - ASAP. No reason for it to not be making money; and if you're concerned with the market, consider an IRA that's a simple FDIC insured CD or savings account. In other words, get your IRA with the banking arm of BofA rather than the investment arm. You can always change it when you feel more comfortable - but at least it would be making money starting as soon as you give it to Bank of America. People forget your IRA doesn't have to be a market investment.
posted by Gerard Sorme at 6:40 PM on September 30, 2008

If I'm reading your question right, you're wondering the rollover means that you'll get exactly the same amount of mutual funds at the new bank as you had at the old bank or if the shifting value of those mutual funds is something you should try to time?

It seems like there's two things that could have been 'timed' to some extent -- selling your old mutual funds and re-buying them at the new bank. Selling your old mutual funds sounds like it's done and gone -- you have a cheque for a value in dollars, not mutual funds. Which makes the decision to invest now or wait a totally independent decision.

Are you now wondering whether you should just deposit that money today? Or wait until a) the market goes down some more or b) the market goes up some more? Or possibly c) buy something totally other than mutual funds with the cheque, and then get back into the market at some much later date when it's more stable.

Note: this non-answer is based on zero knowledge of American retirement funds or the details of rolling over those plans. It just seems like your question is kind of confused, and more than answering it, I'm trying to clarify what the question is.
posted by jacquilynne at 7:10 PM on September 30, 2008

Are you now wondering whether you should just deposit that money today? Or wait until a) the market goes down some more or b) the market goes up some more? Or possibly c) buy something totally other than mutual funds with the cheque, and then get back into the market at some much later date when it's more stable.

I think this is the question I had intended to ask, if I had known how to ask it. So if anyone has experience with this it's most appreciated. Thanks for the help.
posted by quadog at 11:52 AM on October 1, 2008

That being the question, I would say just get it invested. You have only 60 days to do it. A good rule of thumb in trying to "time" investments is that you will usually call it wrong.
posted by megatherium at 4:17 AM on October 2, 2008