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One more risk to be aware of...
Old 05-05-2009, 12:15 PM   #1
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One more risk to be aware of...

401k funds limiting, how much, when and under what circumstances you can withdraw your money.

401(k)s Hit by Withdrawal Freezes - WSJ.com

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Old 05-05-2009, 01:07 PM   #2
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This was a new one on me. The article didn't explain all the details. For example, if these fund companies can bar withdrawals (indefinitely?) for investors who participate through their 401(k)s, I wonder if they have similar land mines hidden in the language of their prospectuses ("prospecti?") for those buying the funds for their IRAs and after-tax accounts? I'm familiar with funds specifying that they might delay redemptions for a week or so, but this is ridiculous.
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Old 05-05-2009, 01:18 PM   #3
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Quote:
Originally Posted by samclem View Post
This was a new one on me. The article didn't explain all the details. For example, if these fund companies can bar withdrawals (indefinitely?) for investors who participate through their 401(k)s, I wonder if they have similar land mines hidden in the language of their prospectuses ("prospecti?") for those buying the funds for their IRAs and after-tax accounts? I'm familiar with funds specifying that they might delay redemptions for a week or so, but this is ridiculous.
Such language would be buried in the pages of the SPD (summary Plan Description), most larger companies allow you to access it online......
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Old 05-05-2009, 01:58 PM   #4
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For folks familiar with 401(k) idiosyncracies, there is also the 12-month "put" for stable value funds. Basically, if your company changes providers, money in the stable value fund may be trapped there for 12 months.
http://www.invesconationaltrust.com/...ValueQueue.pdf

Stable Value Investment Association - FAQ
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Old 05-05-2009, 02:07 PM   #5
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All the more reason to do an in-service rollover if permitted, or at least a rollover shortly after termination/retirement.

In-service rollovers are not permitted by my 403b, 401k, or 457 even though I am over age 59 1/2, but some contracts to allow it.
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Old 05-05-2009, 02:21 PM   #6
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Yeah. I noticed they were not blocking retirement withdrawals.
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Old 05-05-2009, 03:43 PM   #7
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Sometimes a rollover to an IRA (even an in-service rollover) can be detrimental. You may have seen the situation where someone needed to borrow money from their 401(k), but it had no money in it because they did a rollover to an IRA. One cannot borrow money from the IRA or use it as collateral.

They were under 59.5, so to get the money they needed to withdraw from IRA which required them to pay penalty and income taxes. If they had not done the rollover, they could've borrowed the money from the 401(k) saving them thousands in extra costs.

Thus, I don't think the decision is automatic to rollover a 401(k) to an IRA when one switches employers. It may be better to transfer previous 401(k) to new employer's 401(k) even if expenses and fund selections are not optimal. Of course, if one can avoid needing to borrow big sums of money for the short term, then this can be avoided as well.
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Old 05-05-2009, 07:39 PM   #8
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Yeah. I noticed they were not blocking retirement withdrawals.
I noticed that also, but then they cited this:

"Judith Sterner, a 69-year-old part-time nurse, had more than $12,000 in the fund when she tried to transfer that balance to a money market last fall. But her transfer was denied, and her stake has since declined to less than $10,000."

So they are claiming she' not fully "retired" and blocking her request for a withdrawal at 69 yrs old, plus she's locked in as the value declines....Not Good.
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Old 05-06-2009, 10:03 AM   #9
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Borrowing from a 401k is permitted by law, but at the discretion of the employer. If they don't want to mess with it or want to suspend the privilege, you are SOL.

I prefer to have everything in a self-directed IRA and have a separate line of credit for emergencies. By the way, these days are an emergency for me.
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Old 05-06-2009, 03:30 PM   #10
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Hypothetical question: Is blocking the 401(k) withdrawals a new form of "The Emperor has no clothes"? Something smells here....
Cynical is my middle name.
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Old 05-08-2009, 09:32 PM   #11
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Hypothetical question: Is blocking the 401(k) withdrawals a new form of "The Emperor has no clothes"? Something smells here....
Cynical is my middle name.

It pays to be cynacal these days.........not sure what you mean by "the Emperor has no clothes", though. Are you implying that the real reason for blocking withdrawals is because the account is deficient?
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Old 05-09-2009, 07:31 PM   #12
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It pays to be cynacal these days.........not sure what you mean by "the Emperor has no clothes", though. Are you implying that the real reason for blocking withdrawals is because the account is deficient?
Exactamundo.
Nobody wants to admit that the Emporer is naked, which is shocking, or say it out loud and get on his bad side,
so they all act like he isn't naked.
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