What to do with my city pension and 401

February 8, 2009 3:59 PM

I have two retirement accounts and want to know what to do with them, I won't be retiring anytime soon.

I worked for the City for 5 years, when I left I had a vested city pension account with about 20k. At my next job I was there about a year, so now I have a 401k with about 5k.

I got laid off, so now I'm at a new place with no retirement.

I'm only 35, so I'm wondering what I should do with these. Should I:
a) Take the 5k and add it into the city pension, and close the 401?
b) Move the city pension into the 401k, and close the city?
c) Take both, and rollover into Roth IRA, and close both city and 401?
d) Leave them both.. so I can be surprised by 2 checks when I'm 65? =)
e) Other???

Thanks hive.

posted by In Heaven to Work & Money (4 answers total)

You do not have the option of adding one to another.

The best answer comes from your financial advisor, but the most common advice is not to leave the money in the 401(k) plans, although you can, but instead to roll it over into an IRA. Not a Roth, but a standard IRA. (If you do a Roth, you have to pay income taxes on the $25,000.)

And it is essential that it be done the right way, within the 60-day window. The process should be initiated by the new custodian of your choice.

I am glad that you did not include "Should I take the money out and spend it?"
posted by yclipse at 5:07 PM on February 8, 2009

If you can afford the taxes on the 25k then the Roth isn't out of the question. Roth IRA withdrawals are entirely tax free (for now) so the 30 years of growth will outweigh the current tax bill.
Despite what you may hear this is a good time to buy into mutual funds. Just be balanced, spreading it into three or four funds that target different sections of the market (Value, Growth, etc.)
posted by Gungho at 5:21 PM on February 8, 2009

Rolling over into a Roth and taking a tax hit may be a good idea if you expect to be paying more taxes when you retire than you are now. I think that's entirely possible since you have a good 30 years of career ahead of you.
posted by kindall at 8:58 PM on February 8, 2009

Moe the 401(k) directly into a rollover IRA. If your 401(k) is through Fidelity, they can do this easily. If you are moving it to a different company, make sure that they make the check out to a certified financial institution or you could face tax liability.

Not sure what the rules are about the pension.

And start contributing more to your 401(k). If at all possible, and if your income exceeds, say, $70k, you should be contributing the full amount - $16,500 per year.
posted by charlesv at 9:47 PM on February 8, 2009