Bobby Glotfelty

Rolling Over Your 401(k) Have 401(k)s from old jobs lying around? Moving them to Betterment means a common approach for all of your retirement savings. Plus, we make rolling over simple and easy—whether to your 401(k) account or a Betterment IRA. Let’s say you have a 401(k) account at Betterment, but you also have a 401(k) from a previous employer. What should you do with it? You have four choices with respect to 401(k) account from a previous employer: Keep it in your previous employer’s 401(k) plan (assuming previous employer’s plan allows) Roll it over to your current 401(k) plan at Betterment Roll it over to an Individual Retirement Account (IRA) to Betterment or elsewhere Take a cash distribution It’s important to consider all of your available options and to understand the implications of each. Only the first three options keep your money working for your retirement, so taking a cash distribution should be a last resort. Even if you don’t have a huge balance today, thanks to the effect of compounding, your account could grow into a nice chunk of change by the time you retire. Plus, taking a cash distribution is a taxable event, meaning you’ll owe taxes now and might be hit with an early distribution penalty on top of that, courtesy of the IRS. Let’s look at the other alternatives. Keeping your money with your previous employer’s plan Although there are times where it can make sense to keep your 401(k) where it is, doing so may not be in your best interest due to high fees, poor user experience, and a lack of tools and resources. In addition, having a 401(k) account that’s invested in different funds than the 401(k) plan you’re currently contributing to can make it difficult to have a unified investment approach. Rolling over your 401(k) The two remaining choices are either to roll over your old 401(k) to an IRA or to your active 401k at Betterment. Choosing between an IRA or 401k can come down to many factors, such as: fees, investment options, certain tax planning considerations, etc. Choosing to rollover your old 401k to an IRA or to your active 401k is generally the best option for most individuals. Furthermore, you could rollover your old 401k to an IRA provider other than Betterment, but we believe there are lots of reasons why choosing Betterment as your IRA and/or 401k provider is the better choice. At Betterment, it’s different. Simple, efficient, transparent, automated, individualized processes. In just a few clicks, you can start the rollover process to Betterment, whether you’re moving your money to your Betterment 401(k) account or a Betterment IRA. This means you’ll be set up with the appropriate investment strategy, and instantly receive a personalized set of rollover instructions via email. There is zero paperwork required from Betterment, though your previous provider may require paperwork to initiative the rollover. Consolidated investment strategy. By having all of your retirement assets at Betterment, you’ll be able to invest in the same funds and a single, coordinated strategy. This makes it easy for you to monitor your progress and to rest assured that your investments are not competing or cancelling out one another. Low cost with flexibility. At Betterment, our management fee covers everything and is one of the lowest in the industry. The low-cost investments (ETFs) we invest in are among the lowest available to investors. Plus, you can choose from multiple portfolio strategies, including three different Socially Responsible Investing (SRI) portfolios. Holistic view. Betterment’s investment platform allows you to see all of your saving goals in one place, making it easy for you to keep track of your investments. Advice and hands-on customer service. With Betterment, the corresponding investment strategy can align with your specific retirement plan. It can even work in coordination with the rest of your retirement funds. Not only does the website itself provide you with personalized financial advice, we also have a team of CERTIFIED FINANCIAL PLANNER™ professionals and an easy-to-reach customer support team. If you are considering rolling your old 401(k) to another institution, be aware that you may be subjected to lots of paperwork, long waits, and clunky processes. Make sure you understand the fund fees along with other fees that may apply when you open accounts, close accounts, change your allocation, make trades, etc. We automate the rollover process as much as possible. Whether you are rolling over to a Betterment IRA or 401(k), not only does Betterment make the rollover process simple and easy, we also make sure that your funds are placed into a globally diversified investment portfolio that fits your personalized retirement needs—all at a low cost. With just a few clicks inside of your Betterment 401(k) account, we will get the ball rolling for you and automatically open up new accounts (Traditional or Roth), depending on what type of 401(k) monies you are rolling over. We do not need any paperwork from you. Then, we’ll email you a full set of personalized instructions for how to proceed with your rollover, including the next steps to take and the information you need to complete your rollover. Some providers may have rollover paperwork that must be completed or even ask you to give them a call to complete a rollover. If so, there’s no way around that. All of the information you’ll need is included in the Betterment email, including information for how your previous employer’s 401(k) provider should make out the rollover check and where they can mail it to. We will notify you via email as soon as your rollover funds are deposited into your Betterment account. You can roll over more than just a 401(k). It’s important to note that this process does not just apply to 401(k)s. It applies to any employer-sponsored plan that you hold from past employment. This includes pensions, 401(a)s, 457(b)s, profit sharing plans, stock plans, and Thrift Savings Plans (TSPs). Ready to Roll? We designed the rollover process to be as smooth as possible. If you have any questions before or during your rollover process, we have a team of customer experience associates available via phone, email or mobile messaging to sort out any questions or concerns you may have.   Betterment is not a tax advisor, nor should any information herein be considered tax advice. Please consult a qualified tax professional. This article is being provided solely for marketing and educational purposes. It does not address the details of your personal situation and is not intended to be an individualized recommendation that you take any particular action, including rolling over an existing account. When deciding whether to roll over a retirement account, you should carefully consider your personal situation and preferences. Specific factors that may be relevant to you include: available investment options, fees and expenses, services, withdrawal penalties, protections from creditors and legal judgments, required minimum distributions, and treatment of employer stock. Before deciding to roll over, you should research the details of your current retirement account, consult tax and other advisors with any questions about your personal situation, and review our Form CRS relationship summary and other disclosures. If you currently participate in a 401(k) plan administered or advised by Betterment (or its affiliate), please understand that you are receiving this email solicitation as part of a general offering and that neither Betterment nor any of its affiliates are acting as a fiduciary, or providing investment advice or recommendations, with respect to your decision to roll over assets in your 401(k) account or any other retirement account.

Why You Should Consider Converting Your IRA If the market is down, you might be doing your future self a favor by converting all or some of your Traditional IRA into a Roth IRA. With great market volatility comes great opportunity. Drops in global markets can be stressful for many reasons, but they also provide opportunities to put yourself in a better financial position for the future. Our investing advice of doing nothing and staying the course is generally the direction we try to nudge you towards when markets are down. However, performing external account transfers and performing Roth conversions are two actions you may want to consider taking when markets are volatile. What is a Roth conversion? A Roth conversion is when you move money from your Traditional IRA to your Roth IRA. Not to be confused with a recharacterization, a Roth conversion is generally a taxable event. When you contribute to a Traditional IRA, you generally are able to deduct your contributions to avoid paying taxes now. Eventually, when you withdraw money out of your Traditional IRA, the amount you withdraw is considered taxable income. Comparatively, when you make deposits or conversions into your Roth IRA, you are using money that has already been taxed or will be taxed that year. Once money is in your Roth IRA, the contributions and any associated earnings will grow over time and withdrawals in retirement will be tax-free. From a tax perspective, putting as much money into your Roth IRA as possible, at a tax rate that’s as low as possible, is one of the best strategies you can use to make the most of your money. There are no income limits for converting to a Roth IRA, and you can perform as many Roth conversions as you want. It’s important to know that once you perform a conversion, you can’t undo it. Before you convert, it might be helpful to be aware of some of the common mistakes people make when performing Roth conversions. Here are a few reasons why you may want to convert your IRA when the market is down. Your income might be lower this year. If you or your spouse have been laid off, furloughed, or your working hours have been reduced, and your overall taxable income for this year is lower than it otherwise would be—then you may be in a lower tax bracket this year. Being in a lower tax bracket means that you’ll likely pay less taxes on your conversion than you otherwise would have. The balance of your Traditional IRA has dropped significantly. When the balance of your Traditional IRA drops, you are able to convert the same number of shares at lower market prices. This means you likely will pay less in taxes than if you converted those same number of shares at higher market prices. Growth from a global market recovery is better in a Roth IRA than a Traditional IRA. As global markets recover over time, the value of your converted holdings will likely increase. This increase in value will now take place in your Roth IRA, which is the most optimal place for money to grow. Down the line, when you start taking withdrawals out of your Roth IRA, you’ll be able to do so without incurring any taxes. How to Convert—We Help Make It Easy We can help you easily convert part or all of your Traditional IRA to a Roth IRA right from within your Betterment account. Just head to Accounts and find your Traditional IRA. On the right-hand side, click the three dots and you’ll see the option to “Convert to Roth IRA.” It generally takes 1-2 business days for Roth conversions to fully complete. Betterment is not a tax advisor, nor should any information herein be considered tax advice. Please consult a qualified tax professional.

What is Dollar-Cost Averaging? Although it’s not always the most optimal investment strategy, choosing to dollar-cost average into the market has behavioral and psychological benefits that may help you over the long run. Dollar-cost averaging (DCA) is the practice of regularly investing a fixed amount of money over a period of time, regardless of market activity. For example, if you choose to invest $100 on the 15th of the month, every month for 1 year, you would be implementing the investment strategy of dollar-cost averaging. You don’t vary the dollar amount you choose to invest ($100), or the timing of the investment (on the 15th of each month), based on market activity. Types of Dollar-Cost Averaging There are two types of dollar-cost averaging: voluntary and involuntary. Voluntary DCA is when you have a specific amount of cash to invest, but are choosing to parcel it out over a period of time, rather than investing it all at once. Involuntary DCA is when your ability to invest depends on when you have the money to do so. Perhaps you set up auto-deposits, so that you can invest as you earn more money over time with each paycheck. The major difference between these two types of DCA is that involuntary DCA implies that you could not have invested sooner, while voluntary DCA is an investment strategy where you could have, but chose not to. Real Life Example Let’s pretend you have $1,200 sitting in cash that you can invest right now. You choose to invest that $1,200 by investing $100 per month for a period of one year. This would be an example of voluntary DCA. Now, let’s pretend you don’t have any money to invest right now, but through your paychecks you earn $100 per month that you could invest. You invest $100 per month for a period of one year. This is an example of involuntary DCA. Should You Dollar-Cost Average? This question really only applies to voluntary DCA and not involuntary DCA. If you don’t have any money sitting around to invest, then you’ll need to wait until you have the money to invest. For involuntary DCA, the choice becomes whether to invest that money as soon as you earn it, or to let that money build up over time so that you can invest the entire balance. An optimal strategy for involuntary DCA is to schedule auto-deposits as soon as you get paid. If you do have money sitting around to invest, the question then becomes, should you invest it all right away, or should you DCA it into the market over time? There are a couple of answers to this question. The Head vs The Heart The expected total return of markets is positive over time. Therefore, from a purely unemotional investment strategy perspective, it makes sense to invest your cash immediately and not DCA into the market. Studies show that a lump-sum investment will outperform DCA roughly two-thirds of the time and will consistently outperform DCA across global markets. Yet, we all know that leading with the head is easier said than done. Luckily, following one's heart can come with its own set of benefits. Since DCA is a fixed rule, independent of market performance, it is unemotional, diversifies your purchase price, and makes you less susceptible to the counterproductive behaviors people often have when investing. More specifically, DCA can make you less susceptible to the disposition effect, which is the tendency to sell assets that have increased in value, while keeping assets that have dropped in value. People significantly dislike losing more than they like winning, which is more formally known as loss aversion. This goes hand in hand with helping to reduce your susceptibility to anchoring bias, which is when you attach yourself to an irrelevant stock price and begin making investment decisions based on that irrelevant stock price at a later date. Additionally, DCA can prevent you from trying to time the market—which is generally a losing investment strategy over the long run. It also minimizes your chances of feeling regret and may reduce any potential anxiety that you “bought in at the top.” Maybe most important of all, DCA can help you establish good investment habits. After all, choosing to DCA into the market is better than never investing your cash at all. Make A Decision To recap, if you have a pile of cash sitting around to invest, studies show that investing it all right away is the optimal decision the majority of the time. However, choosing to voluntarily DCA into the market has many behavioral and psychological benefits that can have a positive impact on your investing behavior. The most important thing is picking your approach and getting started. It’s better than doing nothing and leaving your cash out of the market completely.