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Ask Dave

Keep The Money In The Old Fund?

Jamie needs Dave's help in deciding what to do with an old retirement fund she's got.

QUESTION: Jamie in Tennessee was a public-school teacher in another state and has almost $77,000 in a retirement fund there. That inactive account is drawing 2%. She has $30,000 of debt. Should she leave that money in the account, or roll it over, or withdraw it and pay off the debt?

ANSWER: You’ll get hit with your tax rate plus a 10% penalty for taking the money out. You’d be losing about 40% of your money. Don’t give the government half your money. Roll it over to an IRA where you can put it in some good growth-stock mutual funds and get a better return than 2%.

Do a direct transfer rollover to an IRA. The way to do that is to contact your mutual fund broker, fill out the paperwork for an IRA in a series of mutual funds that you like, and then fill out a form of transfer to send to the retirement account. The retirement account money is then directly sent to the IRA.

If they send you the money to put into the IRA, that is a withdrawal, and they’ll withhold 20% knowing that you’re going to be taxed. You don’t want to do that. Spread your invested money across four types of mutual funds: growth, growth and income, aggressive growth, and international.