• How to Deal With an Old 401(k)
• How to Want Less Stuff
• The Right Stocks for Your IRA
• Whose Pensions Are Underfunded?

How to Deal With an Old 401(k)

Apathy or spending spree? What'll it be?

Those are the primary paths taken by the average Joe or Jane Investor when they leave a job and need to decide what to do with money from a former work retirement plan (their 401(k) or 403(b) dough).

It's no wonder. In one hand you have a mountain (or maybe a molehill) of formerly off-limit money. In the other you have a four-color promotional circular packed with screaming sale prices on plasma TVs.

I know you know the right thing to do. (Hint: Pitch the sales brochure, stat!) However, I'm not above hounding you to do the right thing with your old 401(k) money, particularly since cashing out your investments is much more costly than you can imagine.

Fight temptation and inertia
Let's just say that you have your old plan administrator cut you a check. Then you forget to stash the loot in another "qualified retirement" plan within 60 days. Oopsy daisy! Prepare to pay up.

First, there are taxes -- the money will be considered "income" and taxed at that rate. And then there are the early-withdrawal penalties -- another 10% right off the top -- along with any fees your plan charges. Finally, consider how using the money now is robbing from your future.

Hopefully, that's enough to convince you to keep the money invested. However, you have another hurdle to overcome: Whether or not to keep the money where it is (in your old employer's plan) or roll it over into another account.

Why you should roll over
Why might you want to move? Let us count the ways:

You may have no choice : Most employer-sponsored retirement plans will force you to take control of your money (via rollover or direct transfer) if you have less than a $1,000, for example, in your account. If you meet the minimum account balance requirements, you may be able to leave the money in your 401(k) until the normal retirement age specified by that plan.

You want more investment choices : Most employer-sponsored retirement plans offer a limited number of investment options. When you roll that money into a self-directed IRA (see the links below for directions), your choices open up: You've got the entire market (including mutual fund families, money market funds, and ETFs) at your disposal. And, by the way, work retirement plans aren't free to participants. Even if they're not clearly stated, administrative fees are baked into the plan. With an IRA at a discount-brokerage firm, all of those fees are spelled out up front. (Things to look for include transfer fees, minimum account balances, administration fees, inactivity fees, and trading commissions.)

You want more leeway in retirement . Uncle Sam has lot of rules for retirees, one of which requires people aged 70-1/2 to begin taking distributions. If your retirement funds are in a 401(k) plan, you are also subject to the distribution rules set forth by the plan administrator. Those tend to be more rigid than those at the companies that manage IRAs. Customer service can also be a factor. Discount brokers tend to act more like banks -- focusing on keeping your business. On the other hand, 401(k)s have a captive audience of company employees and a stream of new business whenever anyone is hired. If it's the investment choices within the plan keeping you there, you'll likely have access to the same ones in an IRA.

You want to move the money into a new employer's plan : Rolling old 401(k) money into a new 401(k) plan is one option, though not all employers permit such transfers. There are advantages (preserving the opportunity to take a loan from the plan) and disadvantages (the investment choices in the plan stink). It all depends on the details of the new plan. (Though if you're chomping at the bit to invest in your new plan because your boss offers to match a percentage of your investing dollars, dream on. You won't get matching funds on your transfer.)

When to stay put
Most of the time it's a good idea to take your 401(k) money with you when you leave a job. But there are times when it makes sense to leave the money with your former employer. Consider doing so if:

All it takes is a little bit of legwork to move that money from a former work retirement plan into a self-directed IRA. (See the links below for more specific directions.)

More details about rolling over:

How to Want Less Stuff

Gas prices and GDP woes may have us Americans tightening our belts, but that doesn't mean we're happy about it.

We sure love our stuff -- shopping for it, setting it up, displaying it, and demonstrating its superiority (speed/capacity/color/taste/size) to the other, lesser stuff out there.

Of course, no discussion of stuff is complete without a reference to George Carlin's famous monologue about it. "The whole meaning of life is trying to find a place for your stuff," he says. "That's all your house is ... a pile of stuff with a cover on it." (Watch it here. PG-13 rating, FYI.)

Good point, George.

Awhile ago, my colleague Selena Maranjian wrote about stuff and gave advice on how to want less of it. She quotes a nice four-step system provided by "NaggingFool" from our "Living Below Your Means" discussion board:

Step 1: Avoid people who want you to want more stuff.

Step 2: Realize how much junk you have now, and how much trouble it is.

Step 3: Learn to appreciate the stuff you have.

Step 4: Think about what else you might want, instead of more stuff.

Hi ho, hi ho, it's off to the mall we go ... anyway
Of course, at some point you're going to have to replenish the pantry, replace some light bulbs, and maybe even buy some stuff to keep the other stuff you have in good working condition.

Before you reach for your wallet, do some pre-shopping prep so you acquire only as much stuff as you really need:

The Right Stocks for Your IRA

"You must pay taxes. But there's no law that says you gotta leave a tip."
-- Advertisement

You work hard for your money, and you take the time to make proper investments for your future, so you deserve to fully enjoy the profits of your decisions.

Minus Uncle Sam's cut, of course.

Look, we can kick and scream about it all we want, but we have to pay taxes on our investments at one point or another. The secret is not overpaying, so that you keep more of what's rightfully yours.

The high-net-worth clients I used to work with knew this, and they made reducing their tax liabilities Priority No. 1. There's a reason they're rich, after all.

But you don't need to keep an accountant on retainer to manage your investment taxes; you just need to practice smart "asset location."

No, that's not a typo
What I mean by smart asset location is knowing which investments to put in retirement accounts like IRAs and 401(k)s, and which to leave in regular (taxable) accounts.

For example, real estate investment trusts (REITs) like ProLogis (NYSE: PLD) don't qualify for the lower qualified dividend tax rate, capped at 15%. Instead, they are taxed at your regular income tax rate, which could run as high as 35%. Therefore, REITs are best kept in tax-deferred retirement accounts.

Also best kept in tax-deferred accounts (at least until retirement) are high-yielding stocks like JPMorgan Chase (NYSE: JPM), Kraft (NYSE: KFT), and General Electric (NYSE: GE). True, these companies' dividends generally qualify for the lower tax rate, but if you have a long-term time horizon, are years away from retirement, and want to take full advantage of dividend reinvestment, it would be wise to defer those taxes.

On the other hand, low-yielding stocks or stocks that don't pay dividends at all, like Sirius Satellite Radio (Nasdaq: SIRI), Noble (NYSE: NE), and MasterCard (NYSE: MA) are best kept in non-retirement accounts. The point of owning these fast growers is price appreciation, and you aren't taxed on capital gains until you sell. Even then, if you've held the stock longer than one year, the long-term capital gains tax rates, currently capped at 15%, are lower than your income tax rate.

But wait, there's more ...
So there you have it: The right stocks for your IRA are REITs and dividend payers that you plan to hold for long periods of time (and so long as you'll reinvest those dividends).

Of course, your portfolio probably contains investments other than individual stocks, like mutual funds, bonds, and TIPS. You'll want to determine the proper asset location for those as well, which will depend on current tax laws (which seem to change with the winds) and how far you are away from retirement.

It's something worth keeping tabs on; having all your investments in their proper location could save you thousands of dollars, and help you make the most of your retirement years.

If you're unsure of how to optimize your portfolio, Motley Fool Rule Your Retirement advisor Robert Brokamp recently detailed the best location for a wide range of investments. If you'd like to read that report, or have other questions about retirement planning, consider a free 30-day trial to the Rule Your Retirement service. To take advantage of our offer, just click here.

Whose Pensions Are Underfunded?

Here at The Motley Fool, we've long been big fans of long-term investing. We love to point out how many very wealthy people have gotten that way not by frantically trading in and out of stocks, but instead by simply hanging onto shares of strong companies for many years. Look at International Game Technology (NYSE: IGT), for example -- its stock has roughly quadrupled over the past decade. Genzyme (Nasdaq: GENZ) stock has increased in value more than fivefold over the same period.

But there's a problem lurking out there in long-term-land: underfunded pensions. According to an investment research report from UBS, nearly half of the S&P 500 component companies have underfunded pensions, some rather significantly. Ford (NYSE: F) faces a shortfall of $3.3 billion, while underfunding at Goodyear (NYSE: GT) amounts to $1.5 billion.

What does that really mean? Well, companies owe traditional pension benefits to many of their employees, so they set aside money in pension accounts to cover their future liability. Yet for many companies, the funds in the pension account aren't sufficient to meet their obligations, even taking into account their expected growth over time due to investments. So at some point, these firms are likely to have to dip into their earnings in order to pay promised benefits to retirees. That's not good news for shareholders.

In the public sector, state and city governments are often underfunding pension plans. That's causing reduction of services to citizens and threatening their solvency.

According to the report, many firms are sufficiently funded or better -- including, perhaps surprisingly, General Motors (NYSE: GM) and Eastman Kodak (NYSE: EK). Companies don't have to remain underfunded -- General Motors, for example, has only recently shifted into the overfunded category. That's in part due to its issuing debt, which can also be problematic for future earnings, if substantial sums are later devoted to paying down debt. (Check a company's balance sheet to see debt levels and the degree to which they've been growing.)

If you're worried about the funding status of a company pension, here are some tips on how to determine the funding status of a company.

Most of us shouldn't rely on having pensions anymore. Fortunately, we can still secure a comfy retirement. For detailed guidance on retirement planning, test-drive, for free, our Rule Your Retirement newsletter service. A free trial will give you full access to all past issues. It regularly offers recommendations of promising stocks and mutual funds, too.