Lack of Knowledge or Confidence? What's holding you back?
Last week I received the following in an e-mail from my soon-to-be 26 year old daughter. A college graduate with two degrees, she recently changed jobs. "I need to figure out what I am doing with the money from my old job (quickly). Can I just put it into an IRA account that I already have set up or do I need to set up a new one? I'm an idiot when it comes to these things so your help would be appreciated. I'm assuming I can do a direct rollover into an existing account but I just need to know what to do so they don't pay it out to me. Thanks!"
My initial reaction upon reading her request was smug satisfaction that after all the years of discussing financial matters and observing her rolling eyes and looks of utter disgust and disbelief, she finally appreciates my years of providing her with expert counsel! She was seeking and valuing my input! When I reread her message, other thoughts came to mind. "I'm an idiot when it comes to these things." stood out. I've hear variations of this sentence from many participants in Extension workshops I've conducted about money management, retirement plans and investing. Even after we've discussed various tools and strategies, people still want to know, "What should I do with my money?" just as Jocelyn wants to know what she should do with her retirement funds.
Based on the questions she asked and her use of terminology, she has a decent understanding of the recommended protocol for handling the retirement funds from her previous employer.
Here's what she does know about her situation:
1. Generally you have 60 days from the time your previous employer notifies you that you need to make a decision on what to do with your retirement funds or they will send you a check for the balance of your account minus 10% held back for the IRS.
2. She knew that one of her options would be to move the money into an IRA which is an account she has set up using a provider of her choice as well as investments that she chose.
3. She used the term "direct rollover" which means that she should arrange for the check for all of her retirement funds from the old plan to go directly into the IRA, avoiding the 10% IRS withholding, as well as income taxes and a penalty for early distribution if she closed the account and asked that the check be mailed to her.
4. Indicates that a payout would be a bad thing and that by moving the money from one tax-sheltered retirement fund to another she is on her way to a more comfortable future instead of taking the cash today and being back at square one in saving for future expenses.
5. She already has an IRA set up, something we discussed and she acted on a while ago when she left her first full-time position following college graduation.
Jocelyn doesn't suffer from a lack of knowledge, but rather a lack of confidence. She just needed confirmation that her plans were the best strategy to implement but lacked the confidence to take those steps on her own.
What's holding you back from financial success? Is it a lack of knowledge or a lack of confidence?
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