Ask Farnoosh: Can I Roll Over My Retirement Account to an IRA?

Julie on Facebook asks: When I lost my job in 2009, I had accumulated about $45,000 in a TIAA-CREF retirement account with that employer. Should I convert this to an IRA - if that's even possible - or should I leave it? I'm 54 and am working as a contractual employee now without retirement benefits.
 
Hi Julie,
 
Assuming you have another 10 years or so before retiring, you’ll want to continue maximizing any and all retirement accounts – including your TIAA-CREF plan from a previous employer. The problem with letting your money sit is that you can’t make any moves in the account; whatever allocation you had in 2009 can’t be changed. You also can’t add more money to the account.
 
My advice is to do a direct rollover into an individual retirement account (yes, it is possible) where you can have more control over your investment and allow it to grow. First step is to shop around and open an IRA at your local bank or brokerage. You could also choose to open an IRA with TIAA-CREF, a considerably convenient option. “If you have no complaints, you could do a transfer [to the retail side of the business]. The only thing that would change would be the registration of the account,” says Bill Losey, a certified financial planner in New York. You can maintain access to your old funds, too, if you so choose.
 
[Related: 401(k) and IRA Changes Coming in 2013]
 
From there, contact TIAA-CREF to do a direct transfer of funds to your new IRA. “Direct” is key, as it will ensure your funds hold their tax-exempt status. This video from TIAA-CREF explains how to roll over funds to an IRA.
 
Whatever you choose, avoid withdrawing the money. Because you’re under the age of 59 ½, you’ll suffer a 10% IRS penalty, in addition to income taxes due.
 
Sheila emails: Is anything changing with flex spending accounts next year? Any advice to help?
 
Hi Sheila,
 
Flex spending accounts, which help cover out-of-pocket medical expenses like co-pays, premiums and some elective surgery, have a new contribution cap in 2013. The IRS will now require employers to limit the amount of pre-tax dollars workers can set aside in their FSAs to $2,500. In the past, there was no official limit, though many companies typically capped their FSAs at around $5,000. 
 
While this is not necessarily welcome news, it’s worth pointing out that a 2010 survey found that employees contributed less than $1,500 a year on average to these accounts. For many this new law may go unnoticed. But if you typically contribute the maximum to your FSA, here are some recommendations to help with the new cap.
 
Double up. If you and your spouse or domestic partner have access to individual FSAs through your employers, consider maxing out both.
 
Use it or lose it. It sounds obvious, but keep a watchful eye on your FSA to make sure you don’t end the plan’s term with money left in the account. About one in five FSA participants leave more than $500 in their accounts unused, according to the Employers Council on Flexible Compensation, and that money just goes back into your employer’s pocket. “Take stock of all of the things medical professionals have recommended to you over the years,” says Susan P. Luskin of Diversified Administration, a third-party health plan administrator based in Hollywood, Fla. “If your dentist has been saying you need a periodontist visit, it’s time to take care of that. If it’s been three years since you got your eyes examined, go out and do it.”
 
Take note of new qualifications. There are some recent IRS changes to what constitutes an eligible FSA expense, which may impact how much you’ll want to set aside going forward. For example, now you need a prescription to buy many over-the-counter drugs with FSA dollars. You also can’t go out and buy allergy medicine without a doctor’s note. “You’ll need what’s called a letter of medical necessity,” says Luskin. Here’s an example of what that letter should look like.
 
Shop generic. Stretch your FSA dollars by opting for generic or store-brand medications rather than the brand name variety. At Walgreens.com, a 100-count bottle of Advil goes for $9.49, compared with $6.99 for Walgreens Ibuprofen, a 25% savings. As for prescription drugs, the big difference between most brand-name drugs and their generic versions is that generics cost less. Just consult with your doctor to make sure the generic version of your prescription will be just as effective and safe.
 
Got a question for Farnoosh? You can reach her on Twitter @Farnoosh or email her at farnooshfinfit@yahoo.com.