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401(k) to 401(k) transfer questions
Old 05-03-2021, 10:46 AM   #1
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401(k) to 401(k) transfer questions

When a company decides to switch from one investment firm to another to manage their 401(k) plan and accounts, what happens to the monthly dividend payouts for the bond funds if the transfer occurs before the end of the month?

Let's say you have funds in Vanguard's Total Bond fund that are being transferred, and the transfer occurs after the 20th of the month (for a 30-day month). I would have assumed that the distribution for that month would have been prorated at the end of the month by 20/30 and would show up later. Or is this for something else?
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Old 05-03-2021, 11:52 AM   #2
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Not hampered by any direct experience here, but if the fund shares are transferred in kind then it would seem that the usual payment would be made by the fund on the usual day. If the old custodian got it after the transfer, then they would simply transfer it to the new custodian. No prorating necessary as you owned the shares the whole time. To you, this should all be invisible.

Thatís the way it works when transferring in kind between IRA custodians.
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Old 05-03-2021, 12:03 PM   #3
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Hmmm, not sure that answers my question. Maybe I'm being too vague. I hate giving out specifics online, but I will try to generalize.

A Vanguard GNMA fund in DW's 401(k) with the old investment firm was cashed out (by them) on March 30 in order to transfer the funds to the new 401(k) investment firm. Those funds were reinvested back into Vanguard GNMA on April 1 (so, out of the market for two days).

On March 31, Vanguard paid a dividend on this fund. My understanding is DW was entitled to 30/31 of the March 31 payout (or whatever daily accrual there might be through the 30th) that would have made it's way to the new investment firm.

Looking at the closing statement from the old investment firm, the total YTD dividends paid on the Vanguard GNMA fund was the total of the January and February 2021 monthly dividends. Nowhere in the balance sent to the new investment firm was the prorated amount for March 2021. And no additional transfers between the investment firms took place in April 2021.

The question becomes is DW entitled to a prorated dividend for March 2021? And yes, we've called the old investment firm and they are investigating, but their initial response is not giving me a warm fuzzy. I also think this is something that would have been planned for or at least caught during the post-transfer audit performed by the old investment firm.

Seems like this would be a similar situation to someone moving an IRA from one investment firm to another.
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Old 05-03-2021, 12:26 PM   #4
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Yeah, that's different. If we were talking about an actual bond, accrued interest is part of the sale proceeds. But I don't do bond funds, so can't help. Maybe call VG? Or tt the new investment fund; they have a fiduciary obligation to her. I'm fairly sure that somehow she has been paid or will be paid.
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Old 05-03-2021, 01:19 PM   #5
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Dividends are paid out on a given date and the price of the fund is adjusted accordingly. If you liquidated the fund prior to that date you sold the shares at the higher price.
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Old 05-03-2021, 01:27 PM   #6
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Dividends are paid out on a given date and the price of the fund is adjusted accordingly. If you liquidated the fund prior to that date you sold the shares at the higher price.
That's not how Vanguard GNMA and many other Vanguard bond funds work. The price of the fund is not adjusted for any paid dividends (interest).
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Old 05-03-2021, 01:36 PM   #7
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That's not how Vanguard GNMA and many other Vanguard bond funds work. The price of the fund is not adjusted for any paid dividends (interest).


Then Iím sure the interest will find its way into your account. Give them a few weeks unless you need the money now, then give your fund manager a call.
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Old 05-03-2021, 01:43 PM   #8
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Then Iím sure the interest will find its way into your account. Give them a few weeks unless you need the money now, then give your fund manager a call.
Well, it's been almost five weeks since the original 401(k) was cashed out and closed. I think that's plenty of time for them to have figured this out, but with our contact today, they've asked for 1-3 days to investigate.

I honestly think they've screwed up. I'm just trying to get some sort of confirmation of how I believe this fund works with regards to paying monthly dividends for part of a month (in this case, 30 of 31 days) is correct.
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Old 05-03-2021, 01:46 PM   #9
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As Dash man says. Here is a longer explanation on Bogleheads: https://www.bogleheads.org/wiki/Divi...nd_fund_prices

Edit: I posted this before your post #6. Perhaps not relevant for your situation.
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Old 05-03-2021, 01:51 PM   #10
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As Dash man says. Here is a longer explanation on Bogleheads: https://www.bogleheads.org/wiki/Divi...nd_fund_prices

Edit: I posted this before your post #6. Perhaps not relevant for your situation.
It isn't. From the link:

Quote:
The fund is required to make such a distribution, and the fund is required to decrease the net asset value (NAV) accordingly, as after the payout the fund holds less wealth. This is true of most equity funds, but not of bond funds.
That last part applies to the Vanguard GNMA fund.
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401(k) to 401(k) transfer questions
Old 05-03-2021, 01:51 PM   #11
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401(k) to 401(k) transfer questions

I just looked at how some of my dividends were transferred when my accounts moved from USAA to Schwab last year. There were journal transfer entries labeled as external transfers from USAA to Schwab. There were several over a six week period after the move. The money was not identified to the individual stock or ETF. The USAA 1099s were correct showing dividends for the stocks.
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Old 05-03-2021, 03:54 PM   #12
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I just looked at how some of my dividends were transferred when my accounts moved from USAA to Schwab last year. There were journal transfer entries labeled as external transfers from USAA to Schwab. There were several over a six week period after the move. The money was not identified to the individual stock or ETF. The USAA 1099s were correct showing dividends for the stocks.
I think that makes sense. The distribution is handled by the system of record where the security is registered. If the shares are registered by name it's going to find you sooner or later depending on the date. For shares in the brokerage name they already sub-distribute that out and it's going to eventually find you from that process.
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Old 05-04-2021, 06:52 AM   #13
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A phone call with Vanguard this morning confirmed that the Vanguard GNMA fund (VFIJX) does accrue interest daily. Since it was sold while held with the original investment firm, they should have received the prorated (30/31) interest for the month of March, and that amount should have been forwarded to the new investment firm.

My contention is the dividend transfer should have happened during the 401(k) blackout period that extended through most of April 2021. I also have to believe my DW is not the only employee/ex-employee that this has happened to.
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