What is the difference between IRA and an employee savings plan mutual fund

Question

i'm no longer at my old job and I am considerig moving my money, but I am not too familiar with investments and moving money around.

Answer 1

It sounds like you participated in a qualified retirement plan at your previous work place.  When you first resigned, did they give you any paperwork asking you to make an election (decision) about moving your money?  Did you contribute some of the money in your employer's plan?  Were you taxed on it, or was it taken from pretax earnings?

Ask you employer or Human Resources department if the funds in the employee savings plan are eligible for direct rollover into an IRA.  When you make this arrangement, the benefit to you is that you avoid having tax withholding taken from the distribution.  That, in turn allows you to roll over the full amount without taking on any tax liability.

Before you can sign up for the direct rollover, you have to make a couple of important decisions.  With recent changes in tax law, you have the choice of directly rolling over to either a traditional or a Roth IRA.  If you are young, then the Roth IRA is probably going to offer you the most advantage, but you will have to pay some taxes on any funds that were contributed to your employer plan that were from pretax earnings.  However, from the date of transfer, you can earn tax-free earnings and by the time you retire, most of the money in your account will be from earnings.

The other decision is where to invest the rollover funds.  I recommend you check into the mutual funds offered by Vanguard or T. Rowe Price.  These are discount brokerages offering a wide range of funds.  Until you have a chance to learn more about investing, consider parking the money in a targeted life stages fund based on your age.  These funds offer a combination of investments based on how long you have until retirement, and they offer automatic asset allocation based on your age.  Basically, they let you put your retirement funds on "automatic pilot".

If you are willing to invest the time, find a fee-paid financial adviser to help you learn about investing.  A good website is the Motley Fool at www.fool.com.  It's fun and informative.