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So it should not be surprising that 401k plans take steps to discourage that action.

This is not just fee to move from our 401k to another company/brokerage, it's the same fee to also get cash for myself to spend. So I don't think avoiding competition from discount-ier brokerages is an issue here.
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And, if it is not typical, if that fee is still in place when I do draw, it seems like I would want to take it all out at once and put it somewhere else.

When the time comes, why not roll it over into an IRA? Any fees incurred may be reimbursed by the brokerage you have it rolled into. Vanguard is the only one that I know of, (not the same thing as the only one,) that does not reimburse fees.

IP
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I just got an updated fee schedule for the 401k through my job. It has a $125 participant distribution fee. I asked our HR person what that meant, have not heard back yet. But, is it typical to have a fee like that on any distribution from a 401k?

Well, $125 seems a little steep, but 401(k)s often have distribution fees when closing out an account by taking a total distribution, either to roll the money over to another plan (401(k) or IRA, for instance) or when you take a final distribution of the entire account. I have paid multiple $50 fees to Fidelity over the years to roll money into my Vanguard rollover IRA. If I had rolled the money into a Fidelity IRA, they would have waived those fees - but would have charged me a fee when I moved the money from the Fidelity IRA to the Vanguard IRA. If you are happy with keeping an IRA with the firm that is administering your 401(k), you may be able to avoid this fee even when rolling to an IRA.

If it really is what it sounds like, they charge $125 to give me any of the money back, it seems like I wouldn't want monthly distributions for income in the future (10-15 years out btw).

Good that you are checking with HR, but I suspect that it's not a fee that would be applied to monthly partial distributions. That said, you need to confirm if there are rules on taking out monthly distributions - do they require you to set up a distribution schedule, or can you just take whatever amount you want when you want it.

AJ
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I don't know if that's normal or not. I don't think my plan has any such fees. We are with Fidelity.

In general though I recommend rolling over to an IRA when you leave a job. There may be some reasons with keeping the money in there if you leave after you turn 55 you can take distributions penalty free instead of having to wait until 59.5 like with an IRA. It's called the "rule of 55"

https://www.thebalance.com/what-is-the-rule-of-55-2894280

But other than that I think rolling into an IRA is superior. You gain flexibility with what you can invest in over what the plan offers.

Curious, who is your plan with if you don't mind sharing?
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Thanks everybody!
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ps-> according to HR it is the fee for any partial or total withdrawal of $$

I remember paying $100 rolling a 401k from one employer out to a portable one from a discount brokerage. I guess when the time comes I will be rolling this one out entirely to a portable/private one too.
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it seems like I wouldn't want monthly distributions for income in the future (10-15 years out btw.)

The fees will likely change or you may even have a new 401k provider 10-15 years from now.
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The fees will likely change or you may even have a new 401k provider 10-15 years from now.

Definitely possible since this one here isn't the one we started with either.
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I just got an updated fee schedule for the 401k through my job. It has a $125 participant distribution fee. I asked our HR person what that meant, have not heard back yet. But, is it typical to have a fee like that on any distribution from a 401k?

I monitored the amount in my 401k that I could move to an IRA via an "in service distribution." For a long time, that amount was less than the full amount of my 401k balance. At age 59.5, I had the full balance available to me. At age 60, I did move some of the money to another custodian, and did a trustee-to-trustee transfer from 401k to an IRA.

There were no fees. Fidelity is the 401k custodian, but not the IRA custodian. (Reason for mentioning--Some places may waive fees to keep the money in their "care.")
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It is not unusual and is usually negotiated as part of the administrative contract between your employer and broker. With more brokers offering cheaper (free) and easier (fractional) trades, more investors are moving funds post-employment from a 401k to a DIY IRA. So it should not be surprising that 401k plans take steps to discourage that action.

Fuskie
Who notes that fee often will not apply if the IRA and the 401k are hosted by the same broker...

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With more brokers offering cheaper (free) and easier (fractional) trades, more investors are moving funds post-employment from a 401k to a DIY IRA. So it should not be surprising that 401k plans take steps to discourage that action.

Those fees were in place long before cheaper (free) and easier (fractional) trades were available at brokerages. I paid a fee for moving my Fidelity administered 401(k) to an IRA in 1996. Fidelity did offer to waive the fee if I had kept the IRA at Fidelity, but I wanted to buy Vanguard funds, not Fidelity funds, and buying Vanguard funds at Fidelity would have cost many times more in commissions than the one-time fee to move the 401(k).

I would agree that it's not surprising that 401(k) plans impose fees to discourage moving assets. But those fees have been in place a lot longer than widespread free trades and fractional shares have been, so I don't think those features are the motivation.

AJ
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Gosh, that' sounds pretty crazy to me -- a distribution fee!

I wonder whether there is also a conversion fee... If there isn't, that would be a possible workaround, since I don't think a conversion counts as a distribution. (But you'd have to have a Roth account set up several years in advance for that.)

culcha
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I wonder whether there is also a conversion fee... If there isn't, that would be a possible workaround, since I don't think a conversion counts as a distribution.

Sorry, a conversion is a distribution. You have to distribute the funds to a new account in order to convert it.

(But you'd have to have a Roth account set up several years in advance for that.)

Not necessarily. You can first set up a Roth IRA by doing a conversion initially. In order to take distributions from that money without being taxed and/or penalized, you would have to have had a Roth account (not necessarily the one you converted into) open for at least 5 years and be 59 1/2 (or meet an exception), or the conversion itself must be at least 5 years old. But as long as you don't need to withdraw the money before then, you're fine.

AJ
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So it should not be surprising that 401k plans take steps to discourage that action.

This is not just fee to move from our 401k to another company/brokerage, it's the same fee to also get cash for myself to spend. So I don't think avoiding competition from discount-ier brokerages is an issue here.
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