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Author: Castallack Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 76397  
Subject: What to do with 401(k) $ Date: 7/31/2001 3:03 PM
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My first company just discovered that the $2800 I had in their 401(k) is below their threshhold and unceremoniously sent me a check for the balance minus the penalty. In the attached letter they told me I can rip it up and have the money transferred intact to an IRA or another 401(k).

So I have a few options since I'm not going to just blow the check on remodeling my kitchen:

a. Move the money over to my current 401(k) which is pretty good and has 12 funds of all different types from which to choose.

b. Rollover to an IRA in which case I can choose anything I want but I'd have to put a little more effort into it (not that I'm unwilling).

c. Cash in the check and invest it in stocks, perhaps making up the penalty and taxes. Gives me the most freedom, obviously, but also perhaps is the most risky. I'm not extremely well-paid, however, and have never had a lump like that to invest so it involves new and exciting possibilities.

What should I do?

Thanks,
Janna
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Author: jrr7 Big gold star, 5000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 31074 of 76397
Subject: Re: What to do with 401(k) $ Date: 7/31/2001 3:18 PM
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So I have a few options since I'm not going to just blow the check on remodeling my kitchen:

Shh! Don't speak so loudly, the people in the Home Depot board might hear you!

What are the good points and bad points of each?

It sounds to me like you're already leaning toward 'A'. I want to dissuade you from 'C' because you lose too much to taxes.

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Author: Dogpile99 Three stars, 500 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 31075 of 76397
Subject: Re: What to do with 401(k) $ Date: 7/31/2001 3:23 PM
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My first company just discovered that the $2800 I had in their 401(k) is below their threshhold and unceremoniously sent me a check for the balance minus the penalty. In the attached letter they told me I can rip it up and have the money transferred intact to an IRA or another 401(k).

So I have a few options since I'm not going to just blow the check on remodeling my kitchen:

a. Move the money over to my current 401(k) which is pretty good and has 12 funds of all different types from which to choose.

b. Rollover to an IRA in which case I can choose anything I want but I'd have to put a little more effort into it (not that I'm unwilling).

c. Cash in the check and invest it in stocks, perhaps making up the penalty and taxes. Gives me the most freedom, obviously, but also perhaps is the most risky. I'm not extremely well-paid, however, and have never had a lump like that to invest so it involves new and exciting possibilities.

What should I do?


Since it is not that much money, I would lean toward A. If you move it to an IRA, you will have to pay to buy and sell, you might get stuck with an inactivity charge and/or low balance.

Don't do C. Once in your hands you might be tempted to blow it plus you pay taxes and a penalty. You might get into this habit whenever you switch jobs and before you know it you have nothing left.

Good luck,

Dogpile :-P



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Author: Castallack Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 31078 of 76397
Subject: Re: What to do with 401(k) $ Date: 7/31/2001 4:33 PM
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______________________________________________
Shh! Don't speak so loudly, the people in the Home Depot board might hear you!

What are the good points and bad points of each?

It sounds to me like you're already leaning toward 'A'. I want to dissuade you from 'C' because you lose too much to tax
_______________________________________________

Ooops, don't want to offend Home Depot! :)


a.(401k) advantage: nothing much to do, just roll it over into the same funds I have my other $ in currently, also, I believe the rules for borrowing if I ever need to are easier than an IRA? disadvantage: limited number of funds to choose from (12, but still a limit)

b. (IRA) advantage: freedom to choose any fund I want. disadvantage: I have to find one and perhaps there are taxes involved?

c: (stocks) advantage: I get absolute freedom to invest as I wish plus the money is much more liquid than a retirment account. disadvantage: penalties and taxes.

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Author: Crosenfield Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 31085 of 76397
Subject: Re: What to do with 401(k) $ Date: 7/31/2001 9:37 PM
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If you cash the check, the penaltes and taxes are too steep.
Your current employer does not HAVE to accept rollovers. But if
they will, and you have a reasonable array of options, that is a
good choice.
If the amount were $28000 instead of $2800 I'd be emphatically
in favor of putting it in an IRA and taking the trouble to manage
it yourself. For $2800 it may not be worth the trouble unless
you LIKE doing the research. Vanguard wants $3000 minimum to open
an account, though they will accept less for an IRA.
So for this amount, I'd check with the human resources department
at your current employer. Will they accept the rollover?
Next question is whether you like your investment choices there.
If you don't, you can use the money in a rollover IRA. You can always
put it in a rollover IRA and then, if you do not contaminate the account with your own contributions (you are allowed to put $2000 this year, more in future, into an IRA for yourself even if you have a 401k)
then you still have the option in the future to roll the account into your then current employer's plan, if they are willing.
Best wishes, Chris

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Author: jrr7 Big gold star, 5000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 31090 of 76397
Subject: Re: What to do with 401(k) $ Date: 8/1/2001 10:11 AM
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You have just as much freedom to invest in an IRA as you do in a taxable account (it's unlikely that you'd run into any of the exceptions). If you rollover from 401(k) to IRA, you can still pull the money out later (paying tax and penalty of course).

You cannot explicitly borrow from an IRA, but there is a way to accomplish much the same thing: you can withdraw money and then pay it back in full in 3 months. This only works once a year.

There are no taxes in a 401(k) to IRA rollover as long as the 401(k) company writes out the check to the IRA company for the full amount.

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Author: Castallack Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 31094 of 76397
Subject: Re: What to do with 401(k) $ Date: 8/1/2001 10:46 AM
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Thanks all for your good advice. My 401k has many good choices and accept rollovers so I will probably just do that.

Thank you!
Janna

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Author: fsidgad Two stars, 250 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 31098 of 76397
Subject: Re: What to do with 401(k) $ Date: 8/1/2001 12:25 PM
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Janna,

If you add this amount to the new 401(k) it will increase your total to a level that is high enough to prevent this situation from arising again in the future.

Good luck in what ever you decide.

JackBD

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Author: Castallack Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 31104 of 76397
Subject: Re: What to do with 401(k) $ Date: 8/1/2001 1:29 PM
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Janna,

If you add this amount to the new 401(k) it will increase your total to a level that is high enough to prevent this situation from arising again in the future.

Good luck in what ever you decide.

JackBD


I guess it's testament to the funds my current company has available but I'm up to about $13,000 in my new fund...is this high enough to avoid the company dumping my fund if I ever leave here?

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