How to Invest a Pension From a Previous Job
Investing a pension that you have from a previous employer can either be very simple or fairly complicated, depending upon various factors. The rules pertaining to retirement assets held with past employers have changed somewhat in recent years. New legislation now provides former plan participants with additional choices that they did not have before this legislation when it comes to moving and managing retirement accounts. Knowing these rules can help you manage your own portfolio effectively and get the most out of your retirement savings.
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Instructions
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Roll your old pension plan payout directly into the retirement plan you have with your current employer, assuming that both your former and current plans are qualified plans according to ERISA (Employee Retirement Income Security Act of 1974) regulations and that your current employer allows it. If you roll it into your current plan, you will have to reallocate the assets in the old plan among the investment options in your current plan, since it is unlikely that both plans have the same investment options (except in the outside chance that both plans happen to be administrated by the same plan custodian).
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Roll it over into a self-directed IRA if you want to have more control over your investment options. If you do this, you can invest the plan balance in almost anything. Many financial experts and advisers strongly encourage this since this method gives you a stationary retirement account that you can roll all employer plans into when you leave them, giving you one central account that holds all of your retirement assets in one place. This means that you will only get one statement and have all of your portfolio holdings listed in a single account.
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Evaluate your current retirement portfolio. If you have moved the pension payout into a self-directed IRA, consider allocating your plan balance among investment options that complement or correlate with the holdings in your current employer plan portfolio. For example, if you are investing primarily in company stock in your employer plan, your rollover account should probably consist of more diversified and conservative holdings, such as bond or balanced mutual funds or a portfolio of individual fixed income securities.
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Tips & Warnings
Creating an optimum retirement plan portfolio can be difficult for the uneducated on the subject of investing. Don't hesitate to seek professional help in this matter if you don't feel like you know what you're doing.
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