401k Companies

Frequently Asked Questions

1. QUESTION:
   Why do 401k companies know so much about your personal background and history?
   My father recently called his 401k company & they had all of his previous addresses and also knew things about his grown children who live on their own. Why would they need all of this information and how do they get it?

   • ANSWER:
     Well some of the information was most likely from his employer, and maybe just past records. And maybe they got some on his kids because they are beneficiaries. Don’t really know why the keep it all and if they get more information in other ways. As to why have the information some of it is probably that they simply don’t throw away any information “just in case”, and for if he died and they needed to know who should get the money, but past that most likely it is the old case of them just having information they probably shouldn’t have, but nothing stops them from having it.

2. QUESTION:
   Do companies always match 401k with company stocks or do they contribute to their general 401k plan they have?
   If a company does not trade stock but they have a K plan plus, are they contributing into their investments they have established. Is Profit sharing the same as 401k.

   • ANSWER:
     profit sharing is a general term to describe the process whereby a company shares part of their profits with employees: it generally takes three forms-some companies use one or more types-

     1. cash bonus
     2. company stock
     3. deferred paln (401k is a specific type of deferred plan)

     options 1 and 2 are taxed immediately upon receipt, so employees get less from them. deferred plans have strict rules on withdrawing the funds, and penalties usually, but are tax-deferred-you dont pay income tax on the money until you take it out. the idea is that you keep these until retirement, when you have lower income and a lower tax bracket, so you are taxed at a much lower rate. plus, over a lifetime of employment these can earn dividends because they are invested.

3. QUESTION:
   How can I find out which companies offer which mutual funds in their 401k plans?
   Ideally I would like access to a database that allows me to look-up by company name what mutual funds are offered by that company. So for GE I would see a list of the 20 mutual funds that are offered to employees in their company sponsored 401k plan.

   • ANSWER:
     There is no public data base detailing 401(k) plans by company – that is private information.

4. QUESTION:
   How much are you allowed to invest in your companies 401k, and how much do they match?
   My company allows us to contribute 20%, they match the first 6% dollar for dollar with company stock.

   • ANSWER:
     Be careful. Match is GOOD. Company stock… Thats a lot of eggs in one basket. I would only contribute enough to max out on their match. Then max out on a Roth IRA. You still have time to open and contribute to one for 2005. I would suggest Vanguard or American Funds.

5. QUESTION:
   What do think of companies that have eliminated matching 401k plans?
   My company stopped matching 401k plans and many people are upset. The company claims that they are financially strong so why cut something like this? Does this mean they don’t care about their employees?

   • ANSWER:
     If it’s true that they are financially strong, it would seem like they care more about their bottom line than anything else IMO.

6. QUESTION:
   What are some companies that have the best 401K or pension programs?
   Recent college grad looking to see what companies have the best retirement programs. I know working for the gov’t has the best pension, but what about companies, which ones invest in their employees the most. I heard steel companies have really good 401K programs.

   • ANSWER:

7. QUESTION:
   Can money be moved from a companies 401k without penalties if invested in an IRA if the employer no long?
   The company doesn’t contribute to the 401?

   • ANSWER:

8. QUESTION:
   If your 401k company switches companies do most people lose their assets?

   • ANSWER:
     Changing the company that MANAGES the 401(k) has ZERO effect on the actual investments in the 401(k). The only possible impact is if the new manager does not offer the same funds as the old manager. In that case, the portion of your account invested in such funds will be cashed, and reinvested in similar funds they do offer. The value of your account the day before the transfer will be the same as the day after.

     YOU own the investments in your 401(k), the management company does not. Compare this to owning rental property managed by a management company. If you change management companies, the actual rental property remains unchanged.

     don c: Please site your source. A TRUE 401(k) is a TAX SHELL, not an actual investment. Neither the shell, nor the underlying investments are Federally insured.

9. QUESTION:
   How do companies that manage 401ks for employees make money? Is my employer paying them to manage my 401k?
   The company that currently manages my 401k told me that I would not have to roll it over when I change jobs – that I could leave it with them.

   However, now I am wondering if they are going to charge me if I leave with them and no longer work for my old employer.

   • ANSWER:
     They might charge you…doubtful but it’s a possibility. If you left it in your employer’s 401k then you would incur the same level of fees that you do now. If you roll into into an IRA with them they likely will put you in assets that have slightly higher fees.

     Here’s the kicker….the fees aren’t generally labeled with the word “FEE”. They are built into the expense ratios of a fund. What the mutual fund does is add up the value of every stock, bond, cd, and piece of cash that is owned by the fund. It then multiplies that amount by the expense ratio. This is the amount that they collect in fees. They then lop that piece right off the top and come up with what’s called the Net Asset Value (NAV) which is value after expenses. They then divide the NAV by the number of shares and come up with the price that the mutual fund will be valued at (purchased at) the following day. This is also called the NAV.

     So, you are getting charged a daily fee…you just don’t see it. What you need to make sure is that is that expense ratio that you are paying worth the returns that they are providing. In many cases the expense ratios inside a 401k are so much lower for the exact same funds that it’s worth it to leave it in there rather than rolling it into an IRA with the same company.

10. QUESTION:
    Why is at working at companies you have to work there for one before signing up for a 401K plan?
    Like companies like Ace Hardware and Wal-Mart would be examples of this. Why do they make the example wait so long to sign up for thier 401K plan? Why such a long wait for the 401K plan?

    Thansk for the help!

    • ANSWER:
      Making such plans available is an investment on
      the part of the employer also.

      Look at is as a reward for being with the employer
      for at least a year. Up front benefits like this should not be
      for those working 3 or 4 months until something
      else better comes along….at least with employers
      such as the ones you are referring to.

      Some employers provide retirement benefits up front
      as soon as you are hired….with the understanding
      that you must work at least five years to be “vested”
      in the company…or in other words to ever have the
      possibility of benefiting from your contributions to the plan.

      A year wait is not bad when you look at it that
      way. I’m sure younger people will disagree with
      me, but I feel that, before the employer gives one
      anything in addition to their paycheck, the employee
      needs first to prove himself by a little commitment.
      This way, one “earns” the benefits that go along with
      employment.

11. QUESTION:
    Why do companies intentionally set their 401k vestation time above their average employee turnover time?

    Thank you, corporate robots.

    • ANSWER:
      Companies implement a 401k plan for several reasons, the primary of which is to match competitors’ benefits and attract employees. As there is a huge cost to retrain employees, most companies set the 401k vesting period for company matches to around five years to promote long-term employment and to recoup the costs (via returned matching funds) of retraining people.

      I hope this helps.

12. QUESTION:
    I am 24 years of age. I have been taking 10% of my salary and investing it in my companies 401k. I also have
    have maxed my Roth IRA contributions for the past 2 years. Is there any thing else I should be doing? I am currently saving for a down payment for a home but don’t want to miss any investment opportunities. Am I doing it right?

    • ANSWER:
      You are doing an excellent and amazing job. Most people in your age group don’t even have the idea to do what you are doing.

      The only thing I would suggest would be to make sure that your investment choices within your company’s 401k and your Roth are wise ones for your age and are sound investments in the first place. For example, for your age, high quality stock mutual funds plus some international exposure.

      The only other things are:

      DON’T TOUCH THAT RETIREMENT MONEY.

      Don’t run up unsecured debt.

      and

      BUY THE RIGHT HOUSE IN THE RIGHT MARKET!

      The wrong house and/or the wrong housing market can be a terrible source of misery and financial loss.

      You’re on a good track.

13. QUESTION:
    Do you think Companies will do away with matching 401k Plans?
    Some companies used to do 1 for 1 matching for 401ks, but I am hearing that many companies are planning to stop this practice.

    • ANSWER:
      It wouldn’t surprise me with so many cutting out bonuses this past year, that more small businesses will do just that. Sucks.

14. QUESTION:
    Are companies really allowing people to use their 401K’s as loans for a down payment on a home?
    Is this really happening?

    I thought you could only make a loan under extreme hardship.
    Buying a house is not hardship.

    Also, don’t companies know the consequenses?
    Doing this is a horrendous idea. In many many ways.
    Companies are not really allow people to do this – are they?

    • ANSWER:
      Yes, you can use your 401(k) balance to take out a loan on a house. Do the companies know the consequences? Sure, but it does not affect the company, only the person taking out the loan. As for hardship, you are thinking of the hardship withdrawal, not loan. And remember, the loans must be paid back with interest lowering the negative effects (although not eliminating them). The original idea was that young people had two options – save for a house down payment or save for retirement. Most young couples, put in that situation would save for the house and put off saving for retirement. By providing the tax break for a 401(k), saving was retirement was encouraged and thereby providing for the loan, the choice for saving for one or the other was reduced (no need to save for the house if you could save for a retirement, take out a loan for the down payment and pay yourself back).

      The downside is, of course, the foregoing of appreciation on the funds borrowed especially since this appreciation is tax free (until you retire). Additionally, in order not to be completely screwed, the person taking out the loan needs to continue to make normal contributions AND pay back the loan, not just use the contributions to pay back the loan (in other words, the amount contributed per payday needs to be increased during the life of the loan).

      Just so you know, only about half of employers make these loans available. The main problems is, of course, that people do not understand the negative effects of taking out the loan and not budgeting the extra payment into their outgo.. There is a good example of the differential between adding the payment to your contributions and not adding the payment here:

      http://www.401khelpcenter.com/mpower/feature_tap.html (see the George example).

15. QUESTION:
    I worked for 3 different companies and with all 3 companies I opened a 401k plan. can I get them together?
    Ineed help on finding them and put them together because I’m going to open anotherone with my new companie.

    • ANSWER:
      As long as you work for those companies, you can not do a roll over. If you have left any or all of those companies or the company(s) have merged with other ones, then you can roll the accounts together into a single IRA. To do this you simply need to create an IRA with a company, and they will generally ask for your account(s) that you wish to rollover into that IRA.

16. QUESTION:
    Can you transfer an IRA to a specific companies 401k plan?

    Thank you Yada Yada Yada and whoever else answers by the time I add this additional comment. Yes, would you please go into detail more Yada? My company doesnt match in the 401k but I am wondering if they start matching I may want to move an IRA to the 401k. Thanks again very much!

    • ANSWER:
      You might be able to, buy why would you ever want to do that?

      Once you have your money in an IRA, you can do everything from the IRA that you could do inside a company’s 401K plan, AND MORE!

      Moving money into a 401K only restricts your options.

      In fact, most 401K plans use mutual funds and in case you didn’t know, mutual funds are not the best thing to invest in.

      (let me know if you want me to go into details why)

17. QUESTION:
    do companies get incentives for having all their employees participating in the 401k program?
    why would the company i have worked for about 3 yrs now ask me to join the 401k program? they are insisting on it now and it makes me wonder why now? why didn’t they insist on it when they hired me 3 years back? it just seems weird to me.

    • ANSWER:
      No, not in the way that you are thinking.

      401k plans are a pure-and-simple employee benefit in the big picture. That means that most of the time the company breaks even at best…the bigger the company and the bigger that plan, the more likely the plan is costing the company…sometimes a lot of money.

      In the little picture, the plan will be much more cost efficient if all the employees are in the plan. That is, the company will spend less money PER EMPLOYEE on the plan if everyone is in. Plans with a participation rate under 50% can cause all kinds of headaches for the company as can plans with high participation from high salary people and low participation from hourly folks.

      Most of the time — even plans with no match and bad investment options — are a net positive for the employees to sign up…so long as they participate at a low level (5% or less) and invest only in the lowest cost non risk option.

      Plans with a match are always in the employees interest to participate…up to the match.

18. QUESTION:
    Would you opt out of your companies 401K if you found out your money was invested in Halliburton?

    • ANSWER:
      Kinda like our unions supporting a candidate

19. QUESTION:
    Can anyone tell me why companies should make 401k’s mandatory for a retirement plan?

    • ANSWER:
      They shouldn’t. That is a privelege and benefit to have for working for a company that does have a 401k plan.

      If you were to make it mandatory, half of the small businesses in the U.S. would have to fold from additional expenses.

20. QUESTION:
    Are there any mutual fund companies with 2x ETF funds that also offer a 401k retirement program?
    I want to invest 2xETSs and inverse in my 401k. Thanks.

    • ANSWER:
      You are limited to the options offered by your employer’s plan. If you have a self-directed brokerage account option in your 401(k), you can buy any ETF that you want.

21. QUESTION:
    What is the penalties for an early withdrawl of you told 401K and company cash pention?
    Due to the outsourcing of my companies manufacturing business (IMATION). I am being laid off, but as part of my severance package I am able to withdraw my cash pension, plus whatever I contributed to 401K which totals around ,000.00. What would i end up paying if i withdraw all this and not roll it over?

    • ANSWER:
      YOu should roll over your pension and 401 k to a qualified plan. Your bank’s financial advisor can help you with this. Do not cash them out. You’ll pay up to 50% in taxes and penalties by the government. Ask an advisor before you do anything. They are free to you initially. Good Luck.

22. QUESTION:
    Is it normal for a 401K company to charge a fee for a rollover?
    I got a new job and the old 401K company wants to charge me to rollover to the new plan. I’ve never been charged a fee for this before. Anybody?

    • ANSWER:
      Yeah that’s normal – but it is still a total ripp off. You shouldn’t be charged that if it is an involuntary cashout though.

23. QUESTION:
    Should I invest in 401K even though company is going out of business or Roth IRA?
    I just got eligible for our companies 401k plan that matches 2 percent and vested over 6 years. Today I heard that they may have to shut down in the next 4-12 months. Should I invest in this plan or just start my own Roth IRA. Thoughts… suggestions…tax issues?

    • ANSWER:
      Do both if you can – the company match is a guaranteed return that is essentially free money for you.
      Put in at least enough to get the full match. If in fact your company folds, then roll it over into an individual IRA at a discount place like Vanguard, Fidelity, or T. Rowe Price. Start a Roth there also. They are all good but Vanguard is best for lower fees.

24. QUESTION:
    I have invested money into my companies stock into my 401k every paycheck.?
    Now my company is telling me that they are not going to have their stock in our 401k and that we need to sell the stock by the end of the year or they will. What can I do so I dont lose money bc the stock is down about ? Thanks!!

    • ANSWER:
      I hope you didn’t devote significant portion of your 401k to your own company. If you did, sell them now! Think about it, if the company has a hard time and decides to downsize, and you’re on the list, you are going to lose both your job and a huge portion of your 401k (if your company is having such a hard time, then the stock must be down too). You’ll be left with nothing if the worst case scenario happens. It may be reasonable to hold a small portion of your 401k in your company, but don’t overdo it.

      So, it is actually good that your company is making you sell the company’s stocks from your 401k. However, it’s kind of fishy that your company would force you to sell all of the company stock. Unless you have a valid reason why your company stock will surge, just get out of the company stock and cut the losses. There are plenty of other investment opportunities.

25. QUESTION:
    is there a time limit for companies to match 401k contributions?
    our employer hasn’t matched 3 checks but our contribution was taken out
    the problem is we have a union so they are required to match per the CBA

    • ANSWER:
      Most likely you should have been notified some how that your company had suspended their matching for 401(k). In this economy, a lot of businesses have had to stop the match to keep people employed.

      I would look through past correspondence from your HR people and you should find this out. Also, at my company, I don’t see the company’s match until I get my quarterly statement.

26. QUESTION:
    Is it better to invest in your companies 401K plan with pre-tax or post-tax dollars?

    • ANSWER:
      Pre-tax for sure, and even then, only if the company matches it. With post tax dollars, unless they’re matched, there’s pretty much no reason to invest in your company’s 401k plan.

      With a little education, you don’t have to use your company’s plan. You can put it into a self directed IRA (with pretax dollars) and do at least as well as your company’s 401K yourself!

      The reason is that with a self directed IRA, you can still invest in anything the company’s 401K allows, but w/o restricting yourself to just those funds. Additionally, you can invest in ETFs, stocks, and a whole bunch of other instruments that you can’t typically with a company plan.

      Back to pre vs post tax. Use pretax for the company plan because your monies will grow until retirement and then be taxed, plus most require you to use pretax dollars in order to be matched.

      However, (as a sidenote), with your first few dollars, opening a ROTH IRA with post tax monies is a great tax advantage because those monies grow and grow and you keep all of it.

      Sorry for the long answer, but hope it helps!

27. QUESTION:
    What financial companies offer good deals to new customers who want to rollover their 401K/403b?
    I have under ,000 in a 403(b) that I’d like to rollover into a traditional IRA account.

    • ANSWER:
      vanguard is by far yoiur best choice for all investment needs. they have the lowest fees, the widest selections, and very helpful people to assist you. look them up on the net and surf around. or you can always call them. they will take care of everything and you will pay the lowest fees in the industry for all types of investments…if not vanguard, then fidelity or t rowe price

      i have done the same

28. QUESTION:
    I have two 401k accounts with other companies. I am at a new company and considering a rollover into 1…?
    I went up to the Vanguard rep at my new company and she said I might want to consider not rolling it over if I didn’t have too considering the economy, stock market, etc. I appreciated the honest advice, but I still don’t see where she was coming from. What the difference is if I rolled it over now or later?

    Thanks!

    • ANSWER:
      I have two 401K’s and plan on keeping both. I have more choices this way. I also avoid more transaction costs. And I’m more diversified. But nothing wrong with rolling them all into one if you wish.

29. QUESTION:
    I have 3 IRA’s from different companies and a 401k from work, should I consolidate and would it save money?

    • ANSWER:
      It’s hard to track performance and asset allocation when you have multiple accounts. Also, you’re probably overlapping your investments–owning the same stocks/industries in each of your IRAs. Plus you pay fees for each account, most likely.

      But on the other hand, having multiple IRAs can be useful IF you are using them in different ways. Say you want to trade stocks in your IRA to avoid short term capital gains taxes. Well you need an IRA at discount brokerage like Scottrade. Say you also want to invest for the long term in boring (but cheap and better performing) index funds. You might want a second IRA at Vanguard. Etc.

      So it’s not bad to have multiple accounts, unless they are all essentially being invested the same way. Then it’s just easier and more efficient to consolidate–and you’ll save a few bucks in annual fees each year.

      But keep your 401k, especially if you’re getting a company match. You can contribute more in 401ks and there’s no income limit.

30. QUESTION:
    how do i find out if i had a 401k with former companies and if there is any money in them accounts?

    • ANSWER:
      Robert — call them and ask…

31. QUESTION:
    How do I find what 401k company we use?
    I work for Buncome County Schools in NC how do I find what company we use for our 401k plan. No one in the front office seems to know. Or if you can find it!…haha I have searched everywhere…anyone want to help look?

    Thanks

    • ANSWER:
      You are a public school employee and would have a 403B plan. Some 403 plans are rip offs where you have to pay handsome fees to invest. I would talk to the union if you have one.
      Many plans have 4 or more preferred providers. Find the one with the lowest costs. I would recommend putting money in a Roth IRA before a 403B plan in most cases.

32. QUESTION:
    What is the difference between pre-tax basic and pre-tax supplemental in my 401k plan?
    there are two choices when selecting the payroll deduction on my companies 401k – pre-tax basic and pre-tax supplemental. When selecting a percentage of my pay that I want to contribute, which one do I choose?

    • ANSWER:
      I’m guessing that you are actually talking about 2 different types of plans. The Basic would be the 401k and the Supplemental would be a SERP (Supplemental Executive Retirement Plan). The SERP is a non-qualified plan that may or may not be invested in the same manner as the 401(k). The accounts are NOT combined. The 401k is covered under ERISA law and is highly protected. The SERP does not have same protections. In fact, I think there has to be a risk of loss in the SERP for it to be valid.

      Essentially the 401k money is deferred and put into a trust. The compensation shows up on the w-2 when it’s actually earned for social security purposes but it’s not taxable for IRS purposes. When it comes time to pay it out you receive the cash and a 1099-R. That’s when it becomes taxable for IRS purposes. The money is real and the balance is tangible. The SERP, however, is typically a phantom plan. You defer your pay but the money does not go into an account for your benefit. The “comp” does not show up on your w-2 and is not taxable for IRS purposes. It’s as if you never earned it. The deferred comp money remains with the company. They may choose to invest it and let you direct it but it remains under their ownership. When it comes time for the payment, the money is paid through payroll and shows up on your w-2. That’s when it’s taxable for IRS and earned for social security.

      Generally how it works is people who are highly paid, max out their 401k contributions and then are stuck. Someone makes 225k can only put ,500 which equates to 6.89% of their pay. Hard to achieve an equivicable retirement income if you’re limited to that 15.5k. The SERP allows them to put more away…But, as I said the assets belong to the company so there is some risk here if the company goes under. Those in the SERP stand in line with all the other creditors.

      So, if you know you’re going to hit the 15.5k figure for the year then put a percentage into the Supplemental Plan. But if you aren’t going to hit that number anyway don’t bother.

33. QUESTION:
    What are some ways to reduce my taxable income other than contributing to a 401k, IRA, and Roth?
    I don’t want to participate in my companies 401k, however I still want to make regular contributions towards and investment for my future as well as reduce my taxable income. Each year I contribute my maximum contributions into my Roth and IRA and will continue. I need an alternative for my 401k contributions. I want more control and transparency.

    • ANSWER:

34. QUESTION:
    What do to with my 401K from the company I am no longer employed with over a year?
    I am no longer employed with the company and there are no more contributions to my 401k, what are my options and what would be a good decision? perhaps, I could use the money to pay off my loans but would that be a good decision? The company is T.Rowe Price, should I stay with it or look for another company? How does it compare to other companies and what to look for if I decide to Convert it into an IRA?

    Thanks for your help.

    • ANSWER:
      That’s a no-brainer: roll it over into an IRA. T. Rowe Price is good. So is Vanguard, if you want to stay with a mutual fund company. You’ll lose AT LEAST 30% to tax and penalty if you withdraw the account.

35. QUESTION:
    If my company is not matching, should I enroll in their 401K?
    Everybody says that you should enroll for lowering taxes but my husband is self employed and has more losses than profit and we file jointly. So my gross income being K/year and him having about [FAQ-QUESTION] income (his income equals his losses), would I still benefitiate of enrolling in my company 401K? Would my taxes decrease a lot?

    • ANSWER:

36. QUESTION:
    Is it better for me to start an IRA now or wait until after college and use my jobs 401k plan?
    I’m 21 and about to get out of the Marines and start college. Do people usually open an IRA and enroll in there companies 401k plan?

    • ANSWER:
      If you have any money you can put into a Roth IRA, that would be a very smart idea. You should also have a savings account so you have a safety net.

      Once you are working, use the 401K plan if it has an employer match. If your company has a Roth 401K, that may be an even better option, at least while you are in a fairly low tax bracket.

      The beauty of starting a Roth now is when it is 5 years old you can take up to ,000 out of it to buy a first home–no tax and no penalty. Such a deal!

37. QUESTION:
    Is it wise to cash out my 401k to pay off my house- I changed jobs, amoritization is very high on my house!?
    I recently changed job, and am making 25% less, with the money I have in a MM and my little bit in 401k (30k) I could pay off my house and then eventually pay off my cc# debt (which is about 20k, then my car which is 8k). This way I can afford to live at what I earn, and sock money away for retirement, in addition to joining my new companies 401k. I see this as a big chance to get a leg up on life. PS I will turn 35 years old in a month. Any advice would be appreciated- I just don’t want to be one of those people whose house gets taken away if I loose my job or get seriously injured etc… I like the idea of knowing I will truly “own” my home! Thanks!

    • ANSWER:
      No it’s not wise to cash out but you should be able to borrow from your 401k plan combined with your other fund you should have enough to buy your house. You would take a big loss by cashing out early.

38. QUESTION:
    what 401k company has the lion logo?
    I can’t remember who my 401k is through, but I know that their logo has a lion in it. Kind of vague, but it’s one of the larger companies. Thanks

    • ANSWER:
      You’re thinking of ING.

      http://www.ing.com/

39. QUESTION:
    What is the best way to invest in my 401k?
    I am 29 years old & I want to know how to allocate funds into my companies 401k plan. I have options of basic before-tax, basic after-tax, supplementary before-tax & supplementary after-tax. Also, I have options of bond fund, interest income, Company shares fund, large cap stock, small& midcap stock, global equity and international stock. I can choose how much of a percentage to allocate to each. If anyone has any opinions I would appreciate it, thank you in advance.

    • ANSWER:
      Before tax. As much as is allowed.

      Interest income. 100%

40. QUESTION:
    Can a former company transfer my 401k to another fund without my consent?
    My first 401k from many years ago seems to have switched companies and investment funds. Is this possible? Can a company sell my 401k investment and transfer it elsewhere without my consent?

    • ANSWER:
      yes. they probably switched their current plan as well. you are lucky they didn’t just cash you out. that creates all kinds of tax headaches.

      to avoid it in the future. roll it over to an IRA. manage it yourself. you can buy the same funds that were in your original 401, if you want to.

      contact a discount broker like schwab or ameritrade. they can walk you through the process to avoid taxes or penalties on the transfer.

41. QUESTION:
    If i’m 20, can I participate in my companies 401K? They don’t allow me to because i’m not 21.Can they do this?

    • ANSWER:
      Employers can open the plan up to anyone that they desire, but almost all employers set a minimum age (usually 18 or 21) and a minimum amount of employment (usually from 1000 hours to one year). IRS requires that the plan not benefit highly compensated employees (HCE’s) in the plan substantially more than non-highly compensated employees (NHCE’s) in the plan.

      So, the answer to your question is “yes, they can do that”. It’s not really uncommon.

      There is a document called a “Summary Plan Description” that you can get from HR that describes the rules for your plan. They are required to make it available to all employees at least once per year, but many employers make it available electronically on their intranet site instead of making copies for each employee.

      Most people under 21 don’t participate in their employers 401(k). As a result, employers have a harder time passing the IRS-required Non-Discrimination Test if they include the group with low participation (under 21 or new-hires, for example). If they fail the Non-Discrimination Test, then the HCE’s that run the company can’t contribute as much (or anything) to the plan. Therefore, it’s in the HCE’s interest to set some reasonable eligiblity requirements for the plan.

42. QUESTION:
    How long does my employer have to send payment to the 401K company after it is taken from my pay check?
    On my pay stub I get taken $$$ out. When does my employer have to send the money to the 401K manager?

    • ANSWER:

43. QUESTION:
    What are the disadvantages of a 401k?
    I am 23 and am thinking of joining my companies 401k program but I don’t really understand how it works. Can anyone explain the program to me that doesn’t have an outside agenda.

    • ANSWER:
      good question. 401k’s are excellent vehicles for preparing for retirement. The greatest part about them is that usually your company gives you free money when you participate, called a match. The way it usually works is that you decide how much, either dollars or a percentage of your income, you want to put in to the plan. Then you decide which investments to pick (this can be tricky without knowing what they offer). Ask the person offering the plan to help. Use a mix.

      Whatever you put into the plan is deducted from your income. Heres an example:

      Your income: ,000
      Contribution amt: 5%: 00
      Company match 50c per $: 00
      up to 5%

      Total contribution: 00

      (New taxable income:,000)

      If you do this until normal retirement age of 60 and get a 10% return on your money over that time, you’ll end up with almost ,200,000.

      Since now youre only taxed on ,000, when you decide to retire and get your money you have to pay taxes on all the money you take out (not the whole .2 million unless you take it all at once). If you take it out before your 59 1/2 you will have to pay an additional 10% penalty on whatever you take out. There are exceptions.

      These are pretty much the pros and cons, but if you start now and stay consistent you’ll be able to retire very comfortably.

44. QUESTION:
    Is it OK to borrow against your company 401k?
    I want to know if it’s ok to borrow against your 401k. I invest at 3% and my company matches me dollar for dollar. I want to use it for Christmas on my children. I don’t really know the rates and little naive. So can anyone help out. Thank you.

    • ANSWER:
      The most important gift you can give your children is to instill the need to live within your means, save for the future and that happiness isn’t some junk bought from the store that is quickly forgotten.

      This is not a we won’t have Christmas this year, but have it on a very strict budget. If there is just no money between now and Christmas to be had, you can’t afford to pay back what you borrow either.

      Then for next year, you start the family on a Christmas savings plan. Have everyone make contributions, things like pocket change, and so on. Keep track of accounts and such. Then next year you give each child everything they’ve saved plus a portion of what the family has saved (that would mean the parents) with one thing. Not over half the total can come in the last three months of the year.

      Many if not most people go through life moving and reacting only to the closest crises, never getting ahead, never ready for even the predictable things. If you use this event to teach your children how to get off the crises treadmill, plan for their future and live within their means, you will materially improve their lives and satisfaction with life. What a wonderful gift.

      Marv

45. QUESTION:
    Why do companies only offer a handful of mutual funds to invest in a 401k?

    • ANSWER:
      The biggest reason is cost. During the construction of the 401k portfolio, your Employer and the Brokerage make arrangements on the Funds available for investing. Now there are costs to your Employer for the nature of the contract with the Brokerage, which includes the Funds offered. Some funds aren’t as popular as others, or there may be some in-house funds the Brokerage is trying to sell too, so they adjust the overall costs of the contract by the mix of funds they select.
      It is also worth mentioning that your HR department is generally the one working these contracts out, which explains a lot of the times why they suck.

46. QUESTION:
    Question about 401k savings. If the company that my 401k is through goes broke, is my money gone too?
    My 401k is in a well- known company, and all of the mutual funds within my plan are also managed by this company. I heard that this company recently laid off a lot of its workers, and of course there are all kinds of financial companies going bankrupt left and right.
    If this company goes bankrupt, what happens to my money in the mutual funds?
    Again, this is a big well-known company and has families of mutual funds of all kinds, but i won’t say the name.

    • ANSWER:
      Your money is invested into the market, not into this particular management company. If the management company goes bankrupt, then your company will choose a new management company for their 401k’s, but your money won’t be gone.

47. QUESTION:
    If the company managing your 401K files for bankruptcy, are your investments protected?
    I don’t mean, obviously, the companies you are invested with, I mean just the one that manages the portfolio. For example: let’s say I have ,000 in Microsoft stock in my 401K and it is managed by Vanguard and Vanguard goes kaput! Am I out of luck?
    The PBGC website says it protects defined beneift pensions. 401Ks are definded contribution plans.
    It also specifically excludes 401Ks and profit sharing plans.

    • ANSWER:
      401(k)s are protected under the Pension Benefit Guaranty Corporation (PBGC). – a US Gov agency.

      http://www.pbgc.gov/

      You are only out of luck if the stock goes BK and goes to zero.

48. QUESTION:
    Over-payments: Can the employer make you pay for 401K company match if they overpaid you for almost a year?
    Checking if you are paid 90 cents more than your suppose to and the company makes you pay it back, can they take the money you and them put into your 401K and what about pension.

    • ANSWER:
      Anytime a company overpays you, you have to give it back.

49. QUESTION:
    i use to work at macy’s and at lowes. for both companies i had a 401k plan and invested.?
    i want to cash them out to add them to may current 401k plan. does anyone know what companies these plans are with or how i can find out?

    • ANSWER:
      Contact the Human Resources Department of each company and ask them to send you the necessary paperwork or put you in contact with the 401K Administrator they use.

      Don’t cash the 401K’s out but let your new 401K Administrator deal with the rollover.

      If you cash them out you have to pay taxes.

50. QUESTION:
    What do I do with my old 401K, invest in IRA or rollover into new 401K?
    I recently switched jobs and have 3500 in my old companies 401K but since it is under 5k they are making me close the acct. Shoudl I roll it over into my new companies 401K (which I wont be able to do until march) or do I invest in a Roth IRA?

    • ANSWER:
      Roll it over into a Rollover IRA. From there, you can transfer so much into a Roth IRA over the course of a few years.