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Where does 401k money go if your company goes under/is bought out?

I

imported_Tomato

Diamond Member
Everyone at my company is expected to be laid off in less than six months because it was bought out by another company. My plan is to take my severance pay and go back to grad school...

In this case, what will happen to the 401k I have set up with the company? Does it sit in limbo until I get another job, which may not be for a few years? Is it possible to take the money and roll it over into another sort of savings/investment account with any penalties?
 
I don't know if this matters, but I've been contributing 10% of my salary for the past year. Today, I lowered that amount to 4% before taxes since I need the extra money and also because my company only matches 4%.
 
Originally posted by: Tomato
Everyone at my company is expected to be laid off in less than six months because it was bought out by another company. My plan is to take my severance pay and go back to grad school...

In this case, what will happen to the 401k I have set up with the company? Does it sit in limbo until I get another job, which may not be for a few years? Is it possible to take the money and roll it over into another sort of savings/investment account with any penalties?
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The funds will sit in limbo according to the 401K trustee.
You will be provided an option to withdraw them, roll them over or possible leave them within the investment system where they presently reside.

If you take the withdrawl, you will be automatically hit with a 20% tax/penalty before you see a dime.

You are better to move the funds into an IRA that you control. Then if you need to tap into it, you will pay the 20% at tax filing time only on the amount that you tapped into. You also, have the opportunity to replentish those funds before tax time to reduce the penalty.

Roth IRA will cause the taxes to be triggered. A normal IRA will be best for your situation.
Most mutal funds will set you up an account. Banks will also, however, the mutual funds will generate a better return.

You would just have to provide the 401K trustee the information on the IRA account that you want the funds sent directly to.

 
From experience, I can say that it sits in limbo with your company's 401k fund managers until you rollover into a traditional IRA or into another 401k at your next job.
 
Originally posted by: EagleKeeper
Originally posted by: Tomato
Everyone at my company is expected to be laid off in less than six months because it was bought out by another company. My plan is to take my severance pay and go back to grad school...

In this case, what will happen to the 401k I have set up with the company? Does it sit in limbo until I get another job, which may not be for a few years? Is it possible to take the money and roll it over into another sort of savings/investment account with any penalties?
Click to expand...

The funds will sit in limbo according to the 401K trustee.
You will be provided an option to withdraw them, roll them over or possible leave them within the investment system where they presently reside.

If you take the withdrawl, you will be automatically hit with a 20% tax/penalty before you see a dime.

You are better to move the funds into an IRA that you control. Then if you need to tap into it, you will pay the 20% at tax filing time only on the amount that you tapped into. You also, have the opportunity to replentish those funds before tax time to reduce the penalty.

Roth IRA will cause the taxes to be triggered. A normal IRA will be best for your situation.
Most mutal funds will set you up an account. Banks will also, however, the mutual funds will generate a better return.

You would just have to provide the 401K trustee the information on the IRA account that you want the funds sent directly to.
Click to expand...

Excellent info, just what I was looking for... thanks EagleKeeper! (and Vic for info from personal experience)
 
I am not happy with my 401K investment firm, can I redirect a portion of my funds to something else like an IRA I control and not get penalize?
 
Originally posted by: V00DOO
I am not happy with my 401K investment firm, can I redirect a portion of my funds to something else like an IRA I control and not get penalize?
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No. The only time you get to roll over a 401k is when you change jobs.

One good place to roll over your 401k is to Vanguard.com, since they have some of the best mutual funds to choose from (including VFINX, their S&P 500 index fund) and if your account is directly with them you don't pay any trading / transaction fees to buy their funds.

Important: you must get the 401k trustee to make the check out to vanguard (or whatever brokerage you choose) since if you have the check made out in your name it counts as a withdrawal and taxalarity will ensue.
 
Is there a time limit during which the rollover has to occur, or else it's an auto-withdrawal or something? And, is there a benefit to rolling into a 401k over just putting it in your own IRA?
 
You normally want to roll it over into a traditional IRA at a brokerage house, since the choice of funds is much better than most any 401k plan. Offhand I don't even know if you can roll it over into your new job's 401k, since that's a silly thing to do.

I don't know of any specific time limit, but after a short time they might start charging you maintenance / management fees. There's no point in waiting though, just contact the brokerage of your choice and they'll give you info on setting up the IRA account.

You can mingle a 401k rollover with an existing traditional IRA, but I vaguely recall there might be some minor consequences if you do (so minor I've forgotten them). Your brokerage probably has a FAQ / knowledge base article on this.
 
Originally posted by: DaveSimmons
You normally want to roll it over into a traditional IRA at a brokerage house, since the choice of funds is much better than most any 401k plan. Offhand I don't even know if you can roll it over into your new job's 401k, since that's a silly thing to do.

I don't know of any specific time limit, but after a short time they might start charging you maintenance / management fees. There's no point in waiting though, just contact the brokerage of your choice and they'll give you info on setting up the IRA account.

You can mingle a 401k rollover with an existing traditional IRA, but I vaguely recall there might be some minor consequences if you do (so minor I've forgotten them). Your brokerage probably has a FAQ / knowledge base article on this.
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Presumably if you don't like your brokerage house you could then go and find a new one and move over an entire IRA over to another one at any point in the future? Is there a good site on well recommended ones? It makes sense to pick a huge one because you know it's probably well managed (or at least less likely for some guy running things to be defrauding everything🙂).
 
Some 401K plans will accept funds from another plan.

One can browse through the Money Magazine for mutual funds. They do a copmrehenseive analysis of them in terms of performance and yields.

Nothing locks you into a given brokerage house/mutual fund/bank for your IRAs.
 
I've been happy with Schwab (been there since '99), except for having to pay trading fees to buy Vanguard funds. For my next rollover I'm thinking seriously of sending it directly to vanguard.com so I can put it into VFINX, VEIEX, VEURX without paying any fees.

I'm an index fund fanboy since I'm planning to hold the funds for 20+ years, and over time actively managed funds go from hot to cold compared to the passively managed index funds. "Past performance is no guarantee of future results."
 
Index funds do sound good, Dave.

Schwab, Vanguard - what are some other key brokerages? If you go to one of these and you basically leave the IRA untouched for a few years, what fees do they normally charge? If I have a rolled over 401k sitting in one, and then a company 401k with whomever else, the only other time I'd use schwab/vanguard/etc. would be the occasional stock buy or something.

btW sorry to hijack your thread tomato, but it's still dead on course, so may be of use to you 😛
 
If you have enough in the combined total of your accounts (rollover, Roth IRA, non-retirement/stock buying) then you pay no fees at all unless you sell one fund and buy another.

If your combined balance is not high enough, you get charged "account maintenance fees" of anywhere from $10/year to $50 per quarter. The minimum balance to avoid fees is high at Schwab ($50-55K) but much lower at Vanguard ($5K?).

If you just let your rollover account sit, then either you'll keep getting additional shares of your funds through dividend reinvestment (which doesn't cost trading fees) or you'll get the dividends paid as cash into the account. Most people recommend the reinvestment option.

Other than Schwab and Vanguard, people like Fidelity, ScottTrade, AmeriTrade. I don't recall many people recommending eTrade, but they're another one that's been around for awhile. Most except Schwab (and Fidelity?) have a minimum balance of just $5K to avoid fees.
 
Originally posted by: Tomato
Everyone at my company is expected to be laid off in less than six months because it was bought out by another company. My plan is to take my severance pay and go back to grad school...

In this case, what will happen to the 401k I have set up with the company? Does it sit in limbo until I get another job, which may not be for a few years? Is it possible to take the money and roll it over into another sort of savings/investment account with any penalties?
Click to expand...



you didn't say if the 401k is company stock ala Enron or some mutual funds. If it is company stock then I suggest trying to cash it out. If it is funds then you do what everyone else said.
 
Originally posted by: Skoorb
Index funds do sound good, Dave.

Schwab, Vanguard - what are some other key brokerages? If you go to one of these and you basically leave the IRA untouched for a few years, what fees do they normally charge? If I have a rolled over 401k sitting in one, and then a company 401k with whomever else, the only other time I'd use schwab/vanguard/etc. would be the occasional stock buy or something.

btW sorry to hijack your thread tomato, but it's still dead on course, so may be of use to you 😛
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No problem at all Skoorb, the info is incredibly helpful. Dave certainly knows what he's talking about! 🙂
 
Thanks 🙂 I've just tried to learn enough so that I can leave my investments alone to grow.

Some people enjoy the thrill of picking individual stocks and trying to time when to buy or sell. I'd much rather pick a good mutual fund like VFINX and let it sit for years, so I have more time for books, movies, music and neffing here 🙂
 
Originally posted by: DaveSimmons
Thanks 🙂 I've just tried to learn enough so that I can leave my investments alone to grow.

Some people enjoy the thrill of picking individual stocks and trying to time when to buy or sell. I'd much rather pick a good mutual fund like VFINX and let it sit for years, so I have more time for books, movies, music and neffing here 🙂
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That's not only less work, but generally results in better ROI, which I know you're aware of

:thumbsup:
 
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