Stay in Control of Your Retirement Savings - Rodgers & Associates
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Stay in Control of Your Retirement Savings

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Mary Jane worked for a company in Massa­chu­setts and faith­fully contributed to the 401(k) plan that was held at one of the larger no load fund families as custodian. She and her family moved to Pennsyl­vania some time later which required her to give notice to her employer. The employer did not require her to remove her money from the 401(k) plan. She was happy with the funds she owned and would still get state­ments every quarter so she left her money in the plan. Mary Jane started contributing to the 401(k) plan with her new employer and worked there another 10 years before retiring.

The invest­ments in her old 401(k) account had continued to grow and now she was ready to start drawing from them to supplement her retirement income. Mary Jane was 65 years old and could draw from her retirement accounts without penalty. Unfor­tu­nately, she found out she could not authorize withdrawals from the old 401(k). The money in the account belonged to her but the plan belonged to the old employer.

401(k) plans are set up by an employer for the benefit of the employees. The rules of the plan are estab­lished by the employer (within government regula­tions) and a plan admin­is­trator is assigned by the employer. The plan admin­is­trator is an employee of the company that oversees the plan – enrollment, withdrawals, government filings, etc. A plan admin­is­trator signature is required to authorize any withdrawals from the 401(k).

Getting the plan admin­is­trator to sign off on your withdrawal request is usually not a problem. They follow the guide­lines of the plan and authorize the withdrawal if it is within the rules. Mary Jane was no longer employed by the company and met the guideline. So what was her problem? The employer was no longer in business!

The custodian could not release Mary Jane’s money without a plan admin­is­trator signature. The company had not termi­nated the plan when they went out of business so the funds were never turned over to the employees. This typically happens only with smaller companies. Employees may have to petition the court to appoint a trustee to close the plan and oversee the distri­b­ution of the funds. The amount of time it could take to get a court-appointed trustee, file for termi­nation and get your money distributed depends on how fast the court works.

In Mary Jane’s situation, the company did not go into bankruptcy. The just decided to go out of business but never filed to terminate the plan. We were eventually able to locate the last person to serve as admin­is­trator of the plan. Her custodian accepted the admin­is­tra­tor’s signature allowing Mary Jane to roll over the account to an IRA so she could authorize her withdrawals when needed. The process took several months and was a little unnerving to her but was eventually resolved satis­fac­torily.

When leaving an employer where you have a 401(k) account you should decide quickly what do with those funds. Most employers will not require that you move the money. However, abandoning these accounts is not the best decision even if the employer doesn’t go out of business.

You should consol­idate your retirement accounts either into a tradi­tional IRA or into your new employer’s 401(k) plan if they allow transfers. A tradi­tional IRA will give you the most investment flexi­bility but you will need to wait until you are age 59 ½ to access the funds without an IRA penalty. Your new 401(k) plan will probabl y limit your investment options but you can access funds from a 401(k) at age 55 without penalty. The best option for you will take careful consid­er­ation consid­ering your situation. Make sure you know all the facts before making the change.

Your goal should be to have all of your retirement funds working together for you in the most efficient manner possible. Some people think having multiple accounts is a form of diver­si­fi­cation. It is not. The invest­ments within the account are what provide diver­si­fi­cation. Having fewer accounts to monitor makes imple­menting your investment strategy easier and helps to avoid mistakes.

Rick’s Insights

  • Do not abandon your old 401(k) accounts. Roll them over to a new 401(k) or tradi­tional IRA.
  • Withdrawals from an IRA are subject to penalty until age 59 ½. 401(k) plan withdrawals are only subject to penalty until age 55.
  • Multiple accounts do not neces­sarily provide diver­si­fi­cation. The investment within the account offers diver­si­fi­cation.