Answer

I am a Money 2000^TMparticipant who was recently downsized from my company and have the option of keeping my 401K with my former employer or rolling it over. I've heard of brokerage accounts. What exactly are brokerage accounts? Would this be a good place to roll over my 401K? What do you suggest? What fees should I expect from the rollover or brokerage account? A financial advisor I spoke to believes my former company invests conservatively and that I would be better off with a rollover. I am nervous because there is much I don't understand. Does dollar cost averaging come into play here?

You have three choices with 401(k) distributions:

1. Leave the money with former employer's 401(k) plan (if allowed).
2. Transfer the money to new employer's 401(k) plan (if allowed).
3. Transfer the money into a "rollover IRA" at a bank or brokerage firm or mutual fund company or other financial institution.

As per your question, a brokerage account would be where you would place your assets if you moved the money to a rollover IRA at a brokerage firm (e.g., Fidelity, Merrill Lynch, Smith Barney). Many charge an annual administration fee of $30 to $75 to maintain an IRA or IRA rollover account. This option provides you the most flexibility and control, however. You don't have to wonder if your former employer will go out of business or because it offers only conservative investments. You can choose from among hundreds of investment alternatives available at a brokerage firm and ask their staff to provide advice.

You might also inquire about transfers to your new employer's plan, if they allow it. Ask what investment choices are available there. This, too, could be an attractive option.

As for your question on dollar-cost averaging (DCA), that really doesn't apply here. DCA is investing a regular sum (e.g., $100) at a regular interval (e.g., monthly). An IRA rollover is typically treated as a separate sum and not co-mingled with other IRAs or added to by DCA. By not co-mingling assets, this preserves your ability to transfer this sum intact later, not to mention making your tax paperwork much simpler when you start making withdrawals in retirement. You can certainly employ DCA in the future, however, with new contributions to your new employer's 401(k) plan (e.g., investing 5% of your pay, deducted from each paycheck)