Simplify your retirement savings

NEW YORK (Money) -- I resigned from my job last year. I still have $35,000 in my company's retirement plan, but I don't really understand the investments or fees. I'm thinking of transferring this money to an IRA and investing it in a target-date fund. My husband already has two target-date funds, one in his IRA and another in his 401(k). Does this strategy make sense? -- Sherrie H., Jacksonville, Fla.

You're hardly alone when it comes to being mystified by your company retirement plan and its fees.

A recent AARP study asked more than 800 401(k) participants whether they pay fees in their 401(k) plan -- and 71% said they didn't think they did.

In reality, of course, they do. The financial services firms that manage 401(k)s charge fees for administering and managing the plans, and those costs are typically picked up in whole, or in part, by participating employees.

The fact that so many 401(k) participants don't know that they're footing all or some of the bill -- and aren't aware of the size of that tab -- isn't surprising. Information about fees is often sketchy at best.

Fortunately, a new rule requiring better disclosure is slated to kick in early next year. Until then, you can get a free personal 401(k) fee report by visiting Brightscope's web site.

Should I convert my traditional IRA to a Roth?

Now, let's discuss your intention to move your money into a target-date fund within an IRA. If you're someone who doesn't like to pick investments and monitor them, a target-date fund can be a good choice.

By choosing a fund with a date that corresponds to when you plan to retire, you get a fully-diversified portfolio of stocks, bonds and, in some cases, other assets like real estate and commodities that becomes more conservative as you age.

Target-date funds take a lot of the work out of investing for retirement, but you don't completely get a free pass. Even funds geared toward people of the same age can have very different portfolios, so you need to look under the hood to make sure you're comfortable with what you're getting.

As I noted in a recent column, that's especially true when you near or enter retirement, as some target funds scale back their stock holdings much more slowly than others.

A larger stock stake provides more growth potential, which can be important for maintaining purchasing power throughout retirement. But it also makes a fund more vulnerable to market setbacks that can be unnerving when you're older.

Target-fund fees can also vary considerably from one fund family to another. So you want to be sure you're not overpaying. You can check out a target fund's fees by plugging its name or ticker symbol into the "quote" box at Morningstar.com and then clicking on the "expense" tab.

Our MONEY 70 list of recommended funds includes reasonably-priced target funds from two fund companies, T. Rowe Price and Vanguard. Ideally, you don't want to mix and match target-date funds from different companies, as that can make it more difficult to monitor how your retirement savings are spread among different types of investments.

So for the sake of simplicity, you may want to put your IRA dough in a target fund offered by one of the fund families your husband already invests with, assuming you're okay with its investing strategy and fees.

But if you decide on a fund that has a radically different asset mix or fees than your husband's, you should review your holdings to be sure your funds complement each other and work as a coherent whole. You can see whether that's the case by going to Morningstar's Instant X-ray tool.

Send Walter Updegrave a question

When you're ready to make this move, remember to tell the administrator of your workplace plan to do a direct, or trustee-to-trustee, transfer to your IRA. That way, you'll sidestep the 20% withholding requirement that would apply if the administrator just cuts you a check.

Finally, just in case you decide to go back to work at some point, you'll want to roll this money into a newly-created rollover IRA rather than put it into an existing IRA to which you've made annual contributions.

Why? Well, some workplace plans will accept IRA rollovers consisting only of "qualified" dollars -- that is, funds that have come from other 401(k)s or similar plans. So opening a new IRA will increase your chances of being able to transfer this money back into a future employer's plan (and, possibly, a target-date fund in the new plan) should you later decide to do so.