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socrateaser
socrateaser, Lawyer
Category: Tax
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Experience:  Retired (mostly)
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Im retiring from my job next month after 33 years. I have

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I'm retiring from my job next month after 33 years. I have a large sum of money in a DROP retirement account that has not been taxed. When I leave, I have to either take this money and pay taxes, or move it into something tax deferred. I would like to move this money into something tax deferred. Your suggestions would be helpful. Thanks
Submitted: 3 years ago.
Category: Tax
Expert:  socrateaser replied 3 years ago.
A Deferred Retirement Option Plan is "rollover" eligible if it is deemed "qualified" by the IRS. Your employer can tell you whether or not the plan is amenable to a rollover.

Assuming that the plan is eligible, then the obvious tax-deferred move is to a traditional IRA account at a major investment house (Vanguard, Fidelity, etc.) -- because, that's just a cash transfer, after which you can do whatever you want with the money. And, the IRA rollover has no disclosed or undisclosed sales commission/charge.

Once you have the money in a separate account, you can diversify your investment into whatever you wish.

As for what exactly to invest in, that questions boil down to (1) how soon will you need to use this money, and (2) what is your appetite for risk?

The sooner you need the money, the more conservative your investment. The easier you can sleep at night knowing that you could get crushed in a market reversal, the more aggressive your investment.

Annuities have huge undisclosed commissions. You can accomplish practically the same thing as an annuity by instructing your IRA custodian to make distributions of "substantially equal" amounts based upon your life expectancy. Meanwhile, you can still invest the money as you wish.

In my personal opinion, the safest all around investments are well-diversified direct investments into corporate and/or state general obligation notes/bonds (because, at least for the present, states cannot file bankruptcy on their debt, whereas cities and counties can). I don't like U.S. Treasuries because they are not state tax exempt, and because at the moment, the return on investment is horrible.

Bond funds are a bad deal, because you have no control over your investments.

There is one absolutely certain thing about the market. If you invest all at once, you will get beaten, because the market makers adjust the market short term against anyone who makes a big one-day investment. Whereas if you break your investment into about 12-24 parts and then invest over a long period of time, you end up with an average of high and low purchases which provides a far superior long-term return.

Anyone who tells you to put all of your money into any particular investment, whether an aggressive growth vehicle, annuity or a conservative balanced asset fund, is selling spoiled fish -- in my humble opinion.

Hope this helps.

Customer: replied 3 years ago.
Thank you for the advice. I would like to be safe with this money, therefore, I want something that will preserve it. So you believe a tax deferred IRA or CD might be the way to go? I so, any recommendations on what banks to use? Thanks
Expert:  socrateaser replied 3 years ago.
One of the reasons for the IRA is that you don't have to decide to invest in anything other than a cash account. Then, you can look around and decide on what you want.

A CD, on the other hand, locks you into a single bank's security, at a very low return on investment. So, that wouldn't be my preference.

Personally, I don't like banks as investment custodians (unless you are investing at least $3,000,000, as that's what it generally takes to get a banker's attention), because they have few investment options, and usually high fees. Whereas, www.fidelity.com and www.vanguard.com each have low fees and a wide variety of investment options.

Hope this helps.

socrateaser, Lawyer
Category: Tax
Satisfied Customers: 34830
Experience: Retired (mostly)
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