I have a 401K with my current employer. It is a bare bones plan with only 7 choices for where to put the money. The choices are:1.) a money market fund paying less than 0.50% (LUGXX)2.) two majorly underperforming tech heavy mutual funds (ACEGX, ALTFX)3.) a horribly underperforming bond fund (VKHYX)4.) an uninteresting overseas mutual fund (FAOAX)5.) two other funds that are also not to my liking (OPTFX,VAGAX) I am very unhappy with these choices and I'm particularly unhappy that I can't invest in an index fund. A few employees including myself lobbied pretty hard to include an index fund when the plan was intitiated, but we were ignored.Recently I've stopped contributing new money into this plan, allowing it to be taxed and then investing it on my own. I've done way better than anything I could possibly earn using these 401k choices, even after considering the 401k tax benefit.I'd like to take the existing money in the 401K account and roll it over directly into my IRA where I can have more investment choices. Note I am NOT planning to quit my company, but only to stop participating in its 401K. Anyone know if the IRS will let me rollover my IRA even though I'm not switching employers?Comments on your opinion on the quality of these 401k investment choices are also welcome.
The simple answer is probably not. Under the Internal Revenue Code (specifically Code section 401(k)(10)) assets in a 401(k) plan can only be distributable upon a "distributable event," which means either upon separation of service (termination, death, etc.), certain sales of a subsidiary or assets of a subsdiary (that is, you are changing employers), financial hardship, or attainment of certain age not less than age 59-1/2 - - BUT ONLY pursuant to the terms of the plan (which need not allow distributions under these scenarios - and YES, a plan can even prevent you from taking a distribution on termination of employment if you haven't attained retirement age (and this is rare these days, but it is still possible)).Plan sponsors have a fiduciary duty to prudently select investment funds that are appopriate for all of the participants. This does not mean that they must include what every partcipant wants, but what would allow a participant to achieve a portfolio with risk and return characteristics that are appropriate for each participant. They need not always be the "bewst funds" - heaven knows if we could always do that, none of us would be working - but they must be prudent in their selection. Ask to see the Investment Policy Statement that they use to govern the selection process (ERISA requires one) and if they don't have one, remind them of this fiduciary obligation....
401K mutual fund choices suck for the same reason Cokes cost $4 at the movies- lack of competition. HR depts are reknown for picking awful 401(k) providers. Why don't they just choose Vanguard? Grrrrr....As mentioned, you can't roll over your 401(k) into an IRA while still employed, with rare exceptions. Hopefully you can switch employers in a few years and then you'll be able to roll over. Most people aren't stuck to one employer forever. You could also quit, roll over, then reapply for the same job! Can you avoid the sales load on the funds above? If not, I think you're right just to invest the taxable money. If so...OPTFX is the best looking from a fee and turnover standpoint.Nick
There is a small chance that you can. A few plans allow for in service withdrawls. Since you are no longer contributing to the 401K, you maybe able to take your funds out. Most companies penalize employees for in service withdrawls by preventing contributions for a period of time but that is not a threat. It would not be a trustee to trustee transfer. You would need to be very careful about the 60 day window and if they withhold taxes the balance would need to be made up from other funds. Check your plan rules carefully. The other possibility would a 401K loan that is converted to a distribution.Debra
I did a little more research on this after reading Debra's response. The good news is we're all wrong, except Debra, who gets partial credit.Looks like you can roll over money, one way or another, from any 401(k) plan into an IRA. See:http://www.sacbee.com/content/business/columns/hanson/story/6164843p-7120072c.htmlNick
Thanks to all who replied. I have initiated the process of transferring the 401k into an IRA. I'll request a direct transfer to avoid tax withholding entanglements. Hopefully, I will be successful.Knowing the way my HR department works (think Catbert), it will be a slow and painful process. I'll post the final outcome here.
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