Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
Moving 401(k) Funds
Old 06-07-2005, 12:13 PM   #1
Confused about dryer sheets
 
Join Date: Mar 2004
Posts: 4
Moving 401(k) Funds

I took ER from a large corporation just a few days ago, and would appreciate comments on a subject I've never seen discussed in any financial literature: whether to move 401(k) money from the company plan to the outside, e.g. broker and mutual funds. Obviously the latter gives access to a far greater variety of investment choices, among which will be better and worse performers. But are there any drawbacks which I'm not aware of to leaving my funds in the company plan? Conversely, are there any advantages?
__________________

__________________
mickleover is offline   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Re: Moving 401(k) Funds
Old 06-07-2005, 03:16 PM   #2
Confused about dryer sheets
 
Join Date: May 2005
Posts: 7
Re: Moving 401(k) Funds

If you are at least 55 and younger than 59 1/2 when you leave the firm, you will have unlimited access to your money.* In this situation, if you were to rollover your balance to an IRA, you would lose the exemption to the 10% tax penalty for early withdrawals, and either have to do withdrawals under 72(t) or pay the penalty for any distributions taken.

If you are under 55, it doesn't make much difference where your money is , other than investment selection, since you don't have the exemption in either case.* However I do think there may be differing liability protections for your assets between a qualified plan and an IRA that others more knowledgeable may be able to speak to.
__________________

__________________
&quot;It is useless to attempt to reason a man out of a thing he was never reasoned into.&quot;<br />-- Jonathan Swift
Theo is offline   Reply With Quote
Re: Moving 401(k) Funds
Old 06-07-2005, 03:25 PM   #3
Thinks s/he gets paid by the post
 
Join Date: Jun 2005
Posts: 1,352
Re: Moving 401(k) Funds

Definitely, hopefully the liability thing is in the fore front of someone heres brain..

It has to do with lawsuit protection for 401ks.
__________________
OldAgePensioner is offline   Reply With Quote
Re: Moving 401(k) Funds
Old 06-07-2005, 03:44 PM   #4
Full time employment: Posting here.
 
Join Date: Oct 2002
Posts: 717
Re: Moving 401(k) Funds

Actually you don't have to move the entire 401K.* You can move just a portion, which can give you the best of both worlds, and allow you to defer the decision.

One of the advantages to keeping it at the company plan can be penalties and short term redemption fees from funds usually do not apply.* Some funds require you stay invested for x number of months or you will suffer a small percentage fee (usually 1%) for making an early redemption.* Also loads are often waived in company 401K plans if your selections includes load funds.* *
__________________
Random Reinforcement is Highly Addictive.
riskadverse is offline   Reply With Quote
Re: Moving 401(k) Funds
Old 06-07-2005, 03:46 PM   #5
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
brewer12345's Avatar
 
Join Date: Mar 2003
Posts: 16,391
Re: Moving 401(k) Funds

Quote:
Originally Posted by OldAgePensioner
Definitely, hopefully the liability thing is in the fore front of someone heres brain..

It has to do with lawsuit protection for 401ks.
This is no longer true. Not that long ago, the Supreme Court ruled that IRAs were entitled to the same protections as 401k plans.
__________________
"There are three kinds of men. The one that learns by reading. The few who learn by observation. The rest have to pee on the electric fence for themselves."



- Will Rogers
brewer12345 is offline   Reply With Quote
Re: Moving 401(k) Funds
Old 06-07-2005, 03:49 PM   #6
Thinks s/he gets paid by the post
 
Join Date: Jun 2005
Posts: 1,352
Re: Moving 401(k) Funds

There ya go. Someone has the facts.
Thanks
__________________
OldAgePensioner is offline   Reply With Quote
Re: Moving 401(k) Funds
Old 06-07-2005, 04:28 PM   #7
Moderator Emeritus
Martha's Avatar
 
Join Date: Feb 2004
Location: minnesota
Posts: 13,212
Re: Moving 401(k) Funds

Sorry, it is not quite true that IRAs are totally exempt from claims of creditors. Exemption of retirement plan assets from creditors is a governed by a complicated mix of federal and state law, with many recent changes under the bankruptcy code to go into effect in October.

Under the amendments to the bankrutpcy code, a 401(k) is exempt in its entirety from claims of creditors and IRAs up to $1,000,000 plus any sums rolled over from a 401(k) plan. However, these bankruptcy exemptions only apply if (1) you file bankruptcy and (2) your state has not opted out of the federal bankruptcy exemptions.

If you don't file bankruptcy or your state doesn't allow you to take the federal bankruptcy exemptions, then whether an IRA is exempt from creditors is entirely dependent on state law. States are all over the board on how they treat IRAs, from states that allow no exemption at all, to those who allow an unlimited exemption. Many states allow a certain dollar amount to be exempt, plus sums reasonably necessary for support.

In contrast, even if you don't file bankruptcy or your state doesn't allow you to take the federal bankruptcy exemptions, ERISA, another federal law, provides fairly broad protections for 401(k) plans. (Broad--not absolute. The IRS can take retirement money, even social security, to satisfy unpaid taxes and divorce courts can divide up retirement assets).

So to decide what to do, you need to know what your state's laws are, the laws of any state you might move to, and evaluate the risk of rollover into an IRA against the benefits.

Thread about recent changes to the bankruptcy code: http://early-retirement.org/forums/i...p?topic=2604.0
__________________
.


No more lawyer stuff, no more political stuff, so no more CYA

Martha is offline   Reply With Quote
Re: Moving 401(k) Funds
Old 06-07-2005, 04:35 PM   #8
Moderator Emeritus
Martha's Avatar
 
Join Date: Feb 2004
Location: minnesota
Posts: 13,212
Re: Moving 401(k) Funds

Quote:
Originally Posted by brewer12345
This is no longer true. Not that long ago, the Supreme Court ruled that IRAs were entitled to the same protections as 401k plans.
Not quite, but it doesn't really matter anymore because the Supreme Court decision will be mooted out by the bankruptcy amendments effect in October.
__________________
.


No more lawyer stuff, no more political stuff, so no more CYA

Martha is offline   Reply With Quote
Re: Moving 401(k) Funds
Old 06-07-2005, 04:39 PM   #9
Thinks s/he gets paid by the post
BigMoneyJim's Avatar
 
Join Date: Feb 2003
Location: DFW
Posts: 2,627
Re: Moving 401(k) Funds

Quote:
Originally Posted by mickleover
I took ER from a large corporation just a few days ago, and would appreciate comments on a subject I've never seen discussed in any financial literature: whether to move 401(k) money from the company plan to the outside, e.g. broker and mutual funds. Obviously the latter gives access to a far greater variety of investment choices, among which will be better and worse performers. But are there any drawbacks which I'm not aware of to leaving my funds in the company plan? Conversely, are there any advantages?
As mentioned already you can withdraw from a 401(k) earlier without any tricks, and there is the liability thing. The court ruling is very recent and very new.

Other things to consider are sell/buy issues and trust. In my case my 401(k) trustee was Vanguard, and everything I heard said that my money was completely untouchable by the company if they did something stupid or corrupt like has happened with some pension plans. Still I felt more comfortable in an IRA because there's no doubt in my mind the company can't touch it no matter what happens now. And since the trustee was Vanguard and my rollover IRA is with Vanguard the rollover was in kind...didn't require any buying or selling of shares.

If you have company stock in your 401(k), for example, there may or may not be issues with moving that...it may trigger a sell event. I don't know, but be sure to check that out. Same thing with funds. Maybe you have Fidelity funds and are rolling into a Vanguard IRA...I wouldn't expect problems there but would thoroughly check it out.

Also I notice company 401(k) will tell you all about how to get your money out via annuities, but if you want to find out how to roll your investment away from them that information is very hard to come by. I'm fairly certain you are allowed to do this, so don't let them tell you you can't.

Probably most importantly be sure you do a direct rollover if you transfer funds. If they cut you a check or distribute similarly they will withhold 20% for taxes, and if you don't depost 100% of the withdrawn amount (including the withheld 20% made up by you in cash) into a qualified plan (IRA, other 401(k), etc.) you'll be liable for income tax on the difference plus the 10% penalty. But if you make sure you do the paperwork for direct rollover all the shares/money go straight to the new account with no tax worries.

By the way, the company you're rolling into will probably be of more help than the company you're rolling away from.

More on withdrawals: The 401(k) allows earlier withdrawals with no tricks, but you can withdraw from an IRA before 59 1/2 using the 72(t) rule to withdraw substantially equal periodic payments based on your life expectancy. You're more or less stuck with a withdrawal amount--your choice of % of assets or flat amount if I recall correctly--for the greater of 5 years or until you reach age 59 1/2. There are penalties for running out of money using the 72(t) plan. More details can be found at http://72t.net and http://www.retireearlyhomepage.com/wdraw59.html .

Another thought: If you do roll the assets somewhere else and avoid comingling with after-tax funds (like after-tax IRA contributions, for example) you can later roll back into another 401(k) or qulified plan, so there are future options. (Oh, you said you ER'ed, so hopefully you won't have to consider going back into a plan.)

(Cross-posted with Martha. She's our local expert on the IRA protection ruling.)

In summary, if I were closer to or older than age 55 I would have considered taking withdrawals from the 401(k), but I'm 35 and have heard too many horror stories of guaranteed pensions evaporating in company bankruptcy, and even though I think the 401(k) should be safe from that I feel safer having it in an individual rollover IRA. Any asset-specific issues need to be looked at, but in my case it was all Vanguard mutual funds.
__________________
BigMoneyJim is offline   Reply With Quote
Re: Moving 401(k) Funds
Old 06-09-2005, 11:02 AM   #10
Confused about dryer sheets
 
Join Date: Mar 2004
Posts: 4
Re: Moving 401(k) Funds

Thanks to all for responses.

BMJ: these were the issues I was particularly concerned about; thanks.
__________________

__________________
mickleover is offline   Reply With Quote
Reply


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
500 search phrases for 2006 dory36 Other topics 2 01-16-2007 08:00 AM
Money market in 401K Bill FIRE and Money 2 05-31-2003 08:15 AM
Paying off Debt vs. 401(k) Contributions BigMoneyJim FIRE and Money 4 02-10-2003 11:06 AM
Non-deductible 401k contributions friendlygirl FIRE and Money 3 07-01-2002 11:01 AM

 

 
All times are GMT -6. The time now is 11:32 PM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2017, vBulletin Solutions, Inc.