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Another thing I just thought of to worry about..

edited February 2013 in Fund Discussions
So when you rollover a 401k that's heavy in stocks or bonds, what if the market(s) in question take a dive right before they cut the check to you and then runs back up before you can get it to the new place? Of course the opposite would be a good thing, but you know, just sayin'..


  • Worrying is not going to do much.

    If you have assets elsewhere you can sell in 401k and put it in money market fund and boost equities in other accounts proportionally. If your 401k is big vs other assets, then you can potentially take a small hit if the market moves against you.
  • edited February 2013
    Generally, "rollover" means changing the "characterization" as pertains to IRS rules (from 401k to IRA for example). Sometimes this can be accomplished without leaving the current custodian - provided you're happy with them and they are able to service the new type if account. In such case they will assist you in the process and roll the money over for you. All on paper. No need to cut a check.

    Be aware that once you recharacterize an existjng account those investments will most likely be considered "new" as of the rollover date - and could subject you to early withdrawal fees should you than decide to shift the $$ into different investments. I'd suggest working this out with the custodian ahead of time if possible. Otherwise, shift the $$ into a money market fund just prior to performing the rollover - than into the desired investments once the rollover is completed.

    "Rollover" is sometimes used incorrectly to mean a change of custodians. These are better termed "transfers in kind". Again, there wouldn't be any need for you to receive a check. Once you inform the new custodian in writing of your intent, they will contact the old one and initiate the transfer in whatever amount you specify. Of course, if you really want to receive a check, it can be done that way too. IMHO, that puts a greater burden on you to assure IRS requirements for the rollover or transfer are fully complied with.

    If changing custodians, than the market fluctuations you mentioned could be a problem. Moving the $$ In a few smaller chunks over time is good idea to dampen any impact. Transfers generally take from two to six weeks once your paperwork is received. They're fastest when the two custodians are able to move the $$ via EFT - becoming more common.
  • edited February 2013
    "Rollover" can mean a change of custodian, in the case of your receiving a distribution of funds from a former custodian and moving them yourself to a new custodian. It's often referred to as a "60 day rollover" because that's the amount of time you have to get the $ into the new account before you've got a tax problem; that's the crucial thing you've got to remember on this species of rollover ... that, and you also can't move the same dollars via another 60d rollover within a year's time.

    The reason people do this is to avoid the medallion signature guarantee required for a transfer ... standard IRA agreement language makes this mandatory if the $ is going anywhere other than to the name and address on the account registration. The problem is that medallion signature guarantees are not universally available; for example, locally owned banks in many cases don't provide them.
  • I had my son-in-law sell everything before the rollover to a new custodian so it was all cash and we then invested as we had planned. Worked fine and the was about 1.3 million in Jan-2010.
  • I understand what you all are saying, but the current 401k administrator cashes out my account and sends me the physical check, that's the way they do it, which I have to physically forward to the new plan, what I mean is the time lag while this physical check is flying around the mail worries me, if something dramatic were to happen to the markets before it landed at the new account, it could be bad or good, I wish there were a way to "freeze" everything until it landed!
  • Igno, I can think of a few things you could do to maybe mitigate the drama if that's a worry:

    * See if the administrator will ACH the funds into your bank account, which would reduce the lag time;

    * Move the 401k funds into a short-term bond fund or MM fund, if you can, before you order the distribution ... which would lower the risk of a drop in value;

    * Reinvest in buckets ... sort of a mini, short-term DCA, at least in the riskier funds you're planning to buy.
  • edited February 2013
    Reply to @AndyJ: Agree
  • edited February 2013
    Igno: In addition to the excellent advice from others: Overnight mail is useful for such situations. I used it for sending in paperwork for a couple Roth conversions back when equities were selling for half-off and it worked smooth as silk. (Traditional IRA one day & Roth the next:-). You do need to call the firms involved and work out the details first. And, overnight addresses are often different.

    Sounds like you need to get a small account up and running at the new custodian ASAP using savings or a short term loan so that it is established and able to accept new funds as near as possible to the distribution date. There exist some possibilities here on how to do this while navigating IRS restrictions. Can't comment further, but that's an area where you'd have to do some reading or seek professional advice. (Your new plan sponsor might be of help in that regard.)

    Don't know how strong your worries are, but local banks very likely would be able and willing to set up a tax-sheltered account in CDs or whatever. Wouldn't pay anything at current rates - but growth doesn't seem to be your MO at present - and transfers out could be made in stages, provided you didn't get hit with heavy fees. (I don't do bonds - but Catch, Fundalarm, HY007 and others might give you some guidance here as regards what you are proposing investment-wise.)

  • Well thanks for all the good advice folks, I moved everything in the existing 401 into the mm component and will do the same at the target company ira (Vanguard). So effectively everything is "frozen". I will leave it in the mm until after the next crash and then move it back into stocks..yes I'm using my 401k to time the's a new concept that I think I invented..look for my book.
  • Reply to @igno2: (-:
  • edited February 2013
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  • Reply to @Maurice:

    It really depends on how the check is written. You do not want the check to be written to you (at first it sounds crazy!)

    If the check is cut to you in name mandatory 20% will be withheld. You will have to come up with extra funds to deposit the full funds (in 60 days) and sort it out tax time. This is generally not what you want!

    If the check is cut out to the custodian of your IRA account with "For Benefit of (fbo) 'Account Holder' " and you write the account number in memo field and give the check to your new IRA custodian and they deposit the funds in your IRA account, then there should not be any 20% withholding.

    Of course, if you can do this direct from custodian to custodian it is better but some 401k plans simply do not do it.
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  • edited February 2013
    I have rolled over a 401k once and IRAs several times where I received the funds via a normal check made out to me, and then reinvested the distribution amount with a new custodian. I've never had anything withheld on any of the distributions.

    Standard distribution forms all have a block where you can choose an amount to have withheld, or not to have anything withheld at all; of course withholding is pointless if you're rolling over to a new custodian, because you'll owe no tax whatsoever.

    If you don't specify that you want nothing withheld, the retiring custodian is required to withhold. But you can specify no withholding, and nothing will be withheld.

    The process makes sense, and is in no way draconian. It's clearly spelled out in IRS Publication 590.
  • Reply to @igno2: I don't want to back you into a corner,but what % of drop(crash) before reployment of funds ? Will you be $ cost averaging as market drops or wait till it starts to rise. Thoughts appreciated.
  • Reply to @AndyJ: Likewise, but many years ago. Unless something has changed, there was no problem at all.
  • edited February 2013
    Reply to @Old_Joe: Nothing's changed; just did a 60d rollover in January. Should be the last one until the spousal unit retires in a year or two.
  • Found out they make the check out to Vanguard, then I tell them where to put it, in my source is a mm (transferred/frozen at dj 14,000) and target is my V mm.
    Do NOT stay invested. TIME the market. ;-}
  • edited February 2013
    LOL - Sounds like Igno's got her all figured out. Sure seems in a big hurry to abandon whatever he's been invested in all these years (remember him from FA). Lota interesting comments from everyone. At first Igno appeared to be confronted with a more serious issue than turned out. ... Yeah - IF the current custodian insisted on cutting a check in Igno's name and mailing it to him, and IF the custodian needed several days to close out the account and cut this check, and IF the USPS needed several days to deliver the check to Igno, and IF the check were made out payable to him, and IF his local bank insisted on a customary 10-day hold before depositing proceeds into his account, , and IF he than needed to write a new check and mail it to the new custodian, and IF the USPS needed another several days to deliver the new check to the new custodian, and IF the new custodian than decided to wait 10 days before investing the proceeds, and IF ... (-;
  • Reply to @igno2: I wouldn't tell them where to put it until you have everything under control.:-)
  • edited February 2013
    Reply to @Old_Joe: Don't think I'd word it that way either. (Igno obviously ain't been through tne MFO School of Charm:-)
  • Reply to @Maurice:

    As Maurice said, it's a real disadvantage to investors when their 401k does not permit in-kind transfers. I recently was able to roll over my 401k balance to IRA's while they were still under the 401k plan provider's roof. The provider then reinvested the funds the same day. Then, the IRAs were transferred to a brokerage house. Although this took three weeks, the funds were always invested. What's also really advantageous about this is that you may be able to keep some high-quality load funds in your IRA, assuming that your plan provider buys these funds as load-waived.

    Not many people have after-tax money in their 401k, but if you do, then here's a way to separate the after-tax money and get it into a Roth IRA: First, roll over 401k money to a Trad. IRA that's under plan-provider's brokerage roof. Second, roll back all the taxable money in that IRA back into the 401k plan--many 401k plans permit roll-ins like this. Since 401k's are only allowed to roll in taxable money, this means that the after-tax money has to remain outside the plan in the IRA. Third and final step: "Convert" that IRA to a Roth IRA and then transfer it to whatever brokerage house you like. This is a complicated process, for sure, but with a benefit that makes it worth it.
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