Where is money in a 401(k) account physically kept?

Question

Is the money in a bank or does the employing company keep it?

Answer 1

Well... Physically kept isn't exactly right. Just like the money in your bank account the actual money like bills and coins is not actually "physically" there.

Now as for who holds the funds.... That depends on what company your emplyer has chosen for the plan. The employer does NOT hold the funds as a matter of fact that would be against the law. Even if they delay depositing the funds they face penalties and "lost interest" payments.

The IRS/DOL has limits on how long after you defer the money from your pay that the employer must deposit the funds. The rule was 15 days after the end of the month but they have since clarified that to be the "earliest possible time to seperate the money" which is a bit vague but most have taken it to mean when they pay the taxes withheld or pretty much earlier than the 15th.

So, what that means is that if you deferred money in January, they have to deposit the money into your account at the fund company at the earliest possible time, but definitly before the 15th of Feb.

The money then has to be invested according to the investment instructions that you chose when you enrolled. This also has to be done in a timely manner or you lose "interest". Like if the funds that your money would have been invested in had gained and you lost out onit because your money wasn't invested.

So your money is actually kept in the funds that you choose when you enroll in the plan.

Sorry for rambling on..... I tend to do that....

Answer 2

There are actually 2 layers here.

First of all, there is a custodian of the account to protect your money. But then the money is invested in something, which is where the money actually is. It could be invested in a CD, stocks, bonds, GICs, etc.. So it depends on where you are investing it.

Answer 3

it's kept in a bank.
your company hires a separate financially firm to manage their employes 401(k) plans. (i.e. ameriprise, fidelity, vanguard)

Answer 4

Its sent out for loans.