NEW YORK (CNN/Money) -
I'd like to roll over $90,000 from an old IRA into a new one, but moving all of it at once smacks of market timing. Is it possible to roll over this money gradually -- in other words, dollar-cost-average from my old IRA into a new one?
-- P. B., New York, NY
Is it possible? Yes.
But do I think it makes sense? Definitely not.
Let me explain. To dollar-cost average the rollover, you'd set up an IRA rollover account wherever you want to move your money. You would then do a series of partial direct rollovers (also known as trustee-to-trustee rollovers).
In your case, you might instruct the trustee of your current IRA to transfer, say, $7,500 of your $90,000 balance (or one twelfth of your stash) to the new IRA. You could follow up with additional partial direct rollovers of $7,500 or so in subsequent months, so that by the end of the year your old IRA is depleted and the new IRA is fully funded.
(It's important that you do a direct rollover, by which I mean you have the trustee of your old IRA send the money directly to the trustee of your new IRA, as opposed to a regular rollover in which the trustee sends the money to you and you then fund the rollover within 60 days. A regular rollover gets messy because taxes are withheld, plus you're limited to just one regular rollover per 12 months.)
I think going through such a convoluted process is a wasted effort.
The key is the mix
If you've been approaching your retirement investing the right way, then you should have your IRA money divvied up between stocks and bonds in a way that represents your tolerance for risk and your time horizon, or how long you plan to keep your money invested.
The more risk, or short-term volatility you can stomach, and the longer you plan to keep your money invested, the more of it you would have invested in stocks.
Arriving at and maintaining the right mix, or asset allocation, is the single most important part of a successful investing strategy.
So let's say just for argument's sake that the right or mix of stocks and bonds for you is 60/40 -- which means that 60 percent of your IRA is in stock funds and 40 percent is in bond funds.
Your goal is to keep the same mix.
The easiest way to do that is simply to move all your assets at once in a way that duplicates your current mix.
Your IRA may be in a new account at a new place, and even invested in new funds.
But as long as the new funds represent the same basic asset mix as before, then in terms of risk and potential return, your new IRA will be in exactly the same place as your old one.
And if the mix is off?
Ah, but what if you haven't been investing properly? What if you've been doing what many investors do -- that is, accumulating a hodge-podge of funds that seemed like good ideas at the time rather than building a coherent diversified portfolio? Wouldn't that argue for dollar-cost-averaging into a properly diversified portfolio?
Not at all.
Again, your goal is to have a mix of assets that's appropriate for you. Let's suppose you've got 100 percent of your current IRA portfolio invested in money market funds because you've been wary about buying stocks.
But let's also assume that, given your risk tolerance, time horizon and need for long-term growth, you realize you really ought to have 60 percent of your IRA in stocks and 40 percent in bonds.
Well, if a 60/40 mix really represents the amount of risk you should be taking, there's no reason to spend a year getting to that portfolio. Indeed, taking a longer time than necessary to get there simply means you're at the wrong allocation longer than you need to be.
Of course, if you're dealing with assets in taxable accounts, then you may want to take more time in adjusting your allocation in order to mitigate taxes on gains that may result from selling assets in one account and moving them to another.
But you don't have to worry about that with an IRA since gains aren't taxed until they're withdrawn. So, once you've determined what your asset mix should be, there's no reason to delay getting to that mix.
And if you don't know what your mix should be, well, there's no reason to delay finding that out either. Just click here for guidance, and then roll over your old IRA all at once, reinvesting the assets to reflect the asset allocation that makes sense for you.
Walter Updegrave is a senior editor at MONEY Magazine and is the author of "Investing for the Financially Challenged." He also answers viewers' questions on CNNfn's Money & Markets at 4:40 PM on Monday afternoons.