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Author: Shaniqua Two stars, 250 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 76237  
Subject: Downsized - what to do with 401(k) Date: 4/26/1998 11:28 AM
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My husband has been downsized - he has five weeks left at his current job. He has a 401(k) at his current employer; it has a choice of seven investment options, only three of which come anywhere near market performance.

While he already has leads on several new jobs, some are at small companies that do not offer deferred comp and another would be to become an independent (self-employed) contractor.

What options would he have for his 401k monies? Because of the lack of acceptable investment options, I'm not sure we would want to leave it at the current employer. And if we did leave it there, could we transfer it elsewhere at any time?

Shaniqua
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Author: TMFPixy Big gold star, 5000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 3051 of 76237
Subject: Re: Downsized - what to do with 401(k) Date: 4/26/1998 3:36 PM
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Greetings, Shaniqua, and welcome.

<<What options would he have for his 401k monies? Because of the lack of acceptable investment options, I'm not sure we would want to leave it at the current employer. And if we did leave it there, could we transfer it elsewhere at any time?>>

Your husband may transfer all the monies in his 401k plan to an IRA when he leaves his job. Any broker and your husband's plan administrator can guide him though the hoops to do so while avoiding any and all tax hassles. Be sure he asks for a direct custodian-to-custodian transfer from the plan to the IRA to ensure those hassles are avoided. As to the IRA, he is free to invest in any mutual fund or to use a self-directed account within which he may trade individual securities.

As to timing of the transfer, that's up to the plan documents. Some restrict such distributions to certain times of the year such as quarterly or semi-annually. His employer can tell him about that issue.

Regards…..Pixy


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Author: dswartz Two stars, 250 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 3054 of 76237
Subject: Re: Downsized - what to do with 401(k) Date: 4/26/1998 3:39 PM
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Here's my recommendation: have him roll the 401(K)
funds into a rollover IRA (make sure it's opened as
a rollover account - I got burned this way by a local
bank several years ago. If you roll into a non-rollover
IRA, rolling the funds back into a qualified plan could
be a problem). Anyway, once the funds are in the
IRA, he can manage it himself. If he goes back to
work for a regular company, and he likes their choice
of options, he can always roll back out to their plan.
Otherwise, just keep running the IRA (even if he also
participates in their plan). This also works well if he
elects the self-employment route, since he can set
up an SEP and make his deductible contributions
(presumably to the same account - I can't imagine
why that wouldn't be allowed). I am in the process
of rolling an IRA from PaineWebber to Waterhouse,
that contains 401(K) funds from my previous two
employers (before I decided to strike out on my own).


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Author: TMFPixy Big gold star, 5000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 3055 of 76237
Subject: Re: Downsized - what to do with 401(k) Date: 4/26/1998 3:40 PM
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Greetings, Dswartz, and welcome.

<<Anyway, once the funds are in the
IRA, he can manage it himself. If he goes back to
work for a regular company, and he likes their choice
of options, he can always roll back out to their plan.
Otherwise, just keep running the IRA (even if he also
participates in their plan). This also works well if he
elects the self-employment route, since he can set
up an SEP and make his deductible contributions
(presumably to the same account - I can't imagine
why that wouldn't be allowed). I am in the process
of rolling an IRA from PaineWebber to Waterhouse,
that contains 401(K) funds from my previous two
employers (before I decided to strike out on my own).>>

Just be aware that mixing 401k money with a SEP "taints" that money and it can no longer be transferred to an new employer's 401k plan. A conduit IRA works only if it is maintained as a separate account and is not mixed with any other IRA monies except those that also come from a former employer's qualified retirement plan. For conduit purposes, SEP and Keogh money don't count and will void the eligibility for a later transfer to a new employer's plan.

Regards....Pixy

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Author: Rayvt Big gold star, 5000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 3070 of 76237
Subject: Re: Downsized - what to do with 401(k) Date: 4/27/1998 9:55 AM
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Roll that 401(k) into a self-directed IRA. After that, you can invest it however you want, including any of 7000+ mutual funds.

Ameritrade is good. We have rolled my wife's 401(k)'s into her IRA there twice in the last 5 years. No IRA fee, low commissions.

Good luck,
Ray

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