Moving a 401K account
Q: I will be leaving my company in one week, receiving severance. When moving the 401(k) to another fund managed by a broker, what kind of fees should I be looking at paying? I spoke to one person who mentioned basis points? What does this mean? Is there a certain percentage that is normally paid to someone to manage your funds? Will this be a one-time fee or a continuing cost? -B. S., Memphis
A: As you leave the company, your employer should send you a letter listing your options in dealing with your 401(k), possibly including leaving the funds in the company plan, said Michael Gates, trust officer with Union Planters Trust and Investment Management in Memphis.
If you have never had as much as $5,000 in the plan, the employer may require you to take the money out of the plan, said Carma Cleveland, trust officer at UP. If you have or have had more than $5,000 in the plan, you have the option of leaving the money in the plan.
If you decide to leave the plan, you may incur some costs, depending on what your funds are invested in, Gates said. For example, some investments have surrender charges or back-end fees if you sell them within a certain time after your purchase.
In moving the money, you should have the company make a direct transfer to the custodian of a rollover Individual Retirement Account you set up for the purpose. That way, you won’t have 20 percent (for potential income taxes) withheld from the amount as you would if the check were sent to you.
Your options with a rollover IRA are many. You may put your money with a discount broker and choose investments such as stocks or mutual funds yourself. Or you may invest directly with a mutual fund company, in which case you would pay custodial fees, generally not more than a few dollars a year, he said.
If you want help in investing your money, you could go to a broker, bank, money manager or financial adviser, Gates said. These people will normally charge an annual fee for their services – 1 to 2 percent of the value of the assets in the account is typical.
That’s where basis points come in. A basis point is 1/100 of a percent. So, 100 basis points equal one percent. If an adviser charges a fee of 75 basis points, that’s 3/4 of 1 percent of your account value.
Q: My daughter, a high school senior, has just been accepted to college. Her father and I are divorced, and he says he can’t afford to help with college expenses, so it is up to me. We both have remarried. Will FAFSA (Free Application for Federal Student Aid) take my salary or factor in both my earnings and my present husband’s salary? Does it take it into consideration monthly bills? What other scholarships can we apply for? -T. G., South Carolina
A: You must list both your income and your present husband’s on the FAFSA form, said Chuck Boudreau, director of student financial aid at University of Memphis.
While there is no place on the form to list your monthly bills, the formula for determining if your daughter qualifies for aid is based on a formula for the cost of living for a family of your size, Boudreau said.
To see what scholarships your daughter may be eligible for, check with the financial aid office at the college where she has been accepted.
Boudreau also recommends http://www.fastweb.com for a free scholarship search on the Internet.
( Write David Flaum at The Commercial Appeal, 495 Union Ave., Memphis, TN 38103 or e-mail flaum(at)gomemphis.com.)