401K Cashout?

Question

I received a letter from an old employee (10 year associate, left two years ago) saying I either had to rollover my 401K to an IRA or employer plan. I have over $10k in the account. I was under the impression they had to maintain it by law. Did the law change? Links would be appreciated.
Thanks

Answer 1

depends...is the plan terminating? If not, then yes they have to maintain it. The rule is that if the account is under $1,000 then they can cash you out without your approval with a cash payment. If the accoutn is over $1,000 but underr $5,000 then they can cash you out without your permission but it has to be in rollover form (ie rollover to IRA). If the account is over $5,000 (or ever has been over $5,000) then they need your permission to cash you out.

So, since you have $10k they can't kick you out. But they can charge you a fee for doing staying. The fee can be no more than it costs them to maintain your balance. Check the Summary Plan Description for this. If it's not in there then they can't do it.

Answer 2

Some companies require you to rollover your 401k to a new plan or an outside IRA. They do this because you don't work for them anymore and they would rather not pay the fees to maintain the account. They mail you a statement once a quarter, keep track of the investments. For someone who isn't benefiting the company anymore, can you blame them for not wanting to deal with the hassles of old accounts on their books.

Besides, you will have much more control over the investments you can use if you were to rollover the 401k into an IRA account.

Hope this helps

Answer 3

Very bad. Assuming you'll go from a 28% to 33% tax rate if you withdraw everything, and I'm assuming it's over $75K in your account, then this is how it will play out. First, the company will withhold 28% the year you take it out. Second, when you do your taxes next year, you will have to pay a 10% penalty. Third, you'll have to pay the extra 5% (33-28) federal tax. Fourth, (and this is the big one), you will have to pay the Alternative Minimum Tax (AMT) on not just your 401K money but on ALL your income. If you own a home, you cannot deduct property taxes. You can't deduct the sales tax or state income tax either. So, you will be lucky if you get to keep 50% of your money. The best bet is if you don't want to keep the money in the 401K, then do a rollover IRA with a brokerage company, so you can purchase stocks, ETFs, or mutual funds to build your retirement.

Answer 4

There is no down side to rolling the 401k funds into a rollover account. There are in fact a lot of upsides. It gets you closer to you money where you can make investment decisions without going through your old employer. I suggest you open a rollover account at the bank or institution of your choice and follow their instructions for rolling over the funds.

Answer 5

Its up to the old employer's plan whether you can remain invested in it. But its easy to roll it over into an IRA. You just need to decide where to open the IRA and what to invest it in.

Answer 6

I assume you mean old employer.
You don't have to take the money until you retire, that is why they are asking you to take.
The problem is that if you leave it with them no one is managing your investments. If you leave it with tem and they go out of business they would have to put the funds somewhere and over time it will be harder for you to control where that somewhere is.
I suggest that you have then send it directly to an IRA account that you have set uo.

Answer 7

I've never heard of required roll over unless the company is going out of business. But you'll probably be better off rolling over to a Roth IRA or, if you have 15 to 20 years to invest, put it in mutual funds. For better advise, go to daveramsey.com.

Answer 8

roll-over your 401k. this is easy.