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Smart Investing Newsletter Archive*

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Why It's Important to Rollover Old 401ks into an IRA

Tuesday, September 20th, 2016

Unfortunately, this is a problem we see all too often.

As an employee, many times people leave their old 401k at the place of their previous employer.

They become busy and often forget to take action to move it, without realizing the importance of this financial decision. If the 401k is left at an old place of work it could be managed poorly.

There may be poor investment choices, the manager could be doing a bad job, or you may have never been educated on how to invest and the 401k was left in cash.

These could all hurt your financial future in retirement. By rolling the 401k into an IRA, you obtain much more flexibility.

Often in 401ks you are limited to a select few mutual funds. In an IRA, you are free to invest the funds in a variety of options. By finding the right financial professionals, they can often take care of this process for you.

Here at Wilsey Asset Management, we have many years of expertise when it comes to handling rollover IRAs.

By rolling the funds to an IRA you will also simplify your financial situation. If you worked at 5 or 6, maybe 7 jobs throughout your career, managing those different 401ks can become very difficult. You may also forget that you had one of them.

When you roll the funds into the IRA, you are now left with one account versus many different ones.

Sometimes people are concerned that by rolling the funds into an IRA a tax event will take place. This is not the case and a tax event will only take place when you cash out the 401k.

Make sure you talk with a financial professional before handling these transactions so you understand how the rollover IRA works.

Today's company of the day is ULTA Salon (ULTA). The company is in the business of beauty salons, fragrances, skincare, cosmetics, and other women's products.

The current price is $242.39 and the 52-week range is $146.77-$278.63.

ULTA appears to be expensive, as price/cash flow of 27.2 is well above the industry average of 7.6. Also, the price/tangible book value of 10.7 is more than double the industry average of 4.2.

The company has done a great job growing its sales. They are up 22.1% over the last 12 months and EPS is up 27.5% over the same timeframe.

The balance sheet looks very clean, as debt/equity is zero, which shows us ULTA has no debt on the books.

The current ratio of 2.8 shows the company has liquidity, but a quick ratio of 0.91 shows us the company has a lot of inventory.

It is important to understand why the company has a lot of inventory, and if it has been increasing or declining. Too much inventory can harm the liquidity and profitability of a business.

Looking forward to January 2018, estimated EPS of $7.65 gives us a target sell price of $126.23.

This is nearly half the current price, meaning the company would not currently warrant a buy.

Do you have a question or a company you'd like me to take a look at? Email us at Brent@WilseyAssetManagement.com or Chase@WilseyAssetManagement.com!


Brent Wilsey is president of Wilsey Asset Management and can be heard every Saturday at 8 a.m. on KFMB AM760. 

Chase is a financial analyst for Wilsey Asset Management and can be heard every Saturday at 8 a.m. on KFMB AM760 as the co-host for the Smart Investing show with his father Brent Wilsey. Information is provided by Reuters.

Do you have a question or a company you would like us to take a look at?
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