Any options when 401k closes

[Sarah in SC]

DH's company 401k is closing down in Sept, and the company is not permitted to offer a new plan for one full year (you gotta wonder exactly why IRS shut them down).
Our first thoughts are max out the salary deferral contribution for that last paycheck going in (the HR dept is checking what is max permitted) and making sure that the new plan allows for massive employee salary deferrals (since we will only have Oct, Nov, Dec of 2007 to max it out).

He has a little less than $11k in it now, so we are going to be leaving a few thousand on the table for 2006; unless any bright ideas can present themselves. We already maxed the Roth IRA, so a trad IRA is not an option. Any suggestions? Insights? What are we missing...Help!
Sarah

 

[Nords]

We already maxed the Roth IRA, so a trad IRA is not an option.  Any suggestions? Insights?  What are we missing...Help! Sarah

Probably a dumb question, but did you max both your IRA and the spouse's IRA contributions?

 

[jazz4cash]

What exactly is meant by "401k closes"? That sounds really, really scary to me (can you spell ENRON?)

I think your options depend on what else is going on at the company, what else is going on at the trustee of the plan, etc.

You may be able to roll funds from the 401k into an IRA. If there is any company match you may wish to max out to get the match, otherwise I would avoid a plan that is going to "close" and use IRA's etc instead

 

[mb]

I'm a little confused as to the question.  Are you looking for a tax deferred investment to replace the 401k?

If that is the case then, dare I say it, a variable annuity is the only tax deferred investment that I know of after you have exhausted all of the 401k and IRA options.

I trust you know the negatives (high expenses, initial investment is after taxes, withdrawals are taxed as income) of variable annuities.

It might make more sense to just pay the taxes and invest the money in a tax efficient fund.  Why don't you crunch some of the numbers and see what it suggests?

If you do look at annuities, I think that Vanguard and TIAA-CREF are the best options.

MB

 

[mb]

Mclesters,

Is it "closing" for highly compensated employees only?

MB

 

[Nords]

That sounds really, really scary to me (can you spell ENRON?)

Contrary to popular belief, Kurt Eichenwald's research indicates that Enron's stock price was higher when the 401(k) re-opened than when it was closed.

Not that Enron can take any credit for that event.

 

[Sarah in SC]

Thanks for the replies. The company is in okay shape (small, 30 or so employees) but apparently incompetent at running a 401k. I don't know all the details, but they were audited by the IRS and told to stop all employee deferrals as of the next paycheck, and have each employee roll their accounts into IRAs.

We are in the saving like crazy stage, so my problem is that now I can't put that $5k that was going to be deferred from his salary (he already has deferred about $10k) into a 401k this year, and we've maxed the Roths already for 2006. Plus I'm concerned that if the IRS has penalized the company (by not letting them operate a 401k for one full year from the closing), then we will have just a few months at the end of 2007 to get the full $15k deferral into the 401k. Depending on how plans are written (I think), it is not possible to defer more than x% of salary or something like that...that is part of what I am questioning.

So now that we can't defer the $5k this year and maybe the $15k next year (or at least until the end of the year), I'm making sure that there isn't anything I've missed (but not annuities). Guess it's going on the house payoff instead, but man, you know how annoyed us spreadsheet types get when our plan goes awry!
Thanks again for any insight....and I HOPE it isn't an Enron sort of place--DH did work at a company that gave the 401k match in company stock once, and a fellow joker asked at a company meeting if he could get his in confederate dollars instead! Everyone but the bosses thought it was funny!

Sarah

 

[Scrooge]

Thanks for the replies.  The company is in okay shape (small, 30 or so employees) but apparently incompetent at running a 401k.  I don't know all the details, but they were audited by the IRS and told to stop all employee deferrals as of the next paycheck, and have each employee roll their accounts into IRAs.

There are various tests that a 401k plan has to pass before it will be get a clean bill of health from the IRS. There are rules on how much money highly compensated employees can be putting into it (something that my company almost ran afoul of some years ago) and all kinds of other things.