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401k question

Discussion in 'The Lounge' started by iam20fan, Feb 4, 2009.

  1. my employer stopped their 401k match on 12-31-08. they told me i can't withdrawl my 401k unless i quit or my employment is terminated. currently i still put 100 bucks a month into my 401k. by law can they do this? i have gone through all my paperwork and i have no contract with their 401k people.i have been a allstate insurance customer for 17 years. i want my 401k switched over to allstate financial. will i pay a penelty to withdrawl and switch? i have had the same isurance agent also for 17 years. allstate has been very good to me. i have renters,and auto insurance at allstate.
     
    Last edited: Feb 4, 2009
  2. That's correct, you are not aloud to fully withdraw your entire 401k balance unless you quit or are terminated. However, there is something called an in-service withdrawal. This will allow you to withdraw a portion of your 401k penalty free and tax free. To utilize this option, you must rollover the amount into an IRA. The proportion allowed is usually determined by the policy. So check with the policy to see what ratio or how much you can transfer. Good luck.
     

  3. shroomhunter

    shroomhunter USMC 1979-1983

    But you can stop contributing to it if you choose just as they chose to stop matching contributions. There may be specific times that you can opt in or out and change contribution percentages though.
     
  4. soua0363

    soua0363 Master of Nothing

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    Even if your employer stops contributing right now, they may contribute down the road once the economy gets back on solid ground. Everyone is looking for ways to cut back. It is better that they cut contributions than cut employees.

    I would not stop contributing into your 401k because right now is the time to buy stocks as they are extremely low. Now is the time where you can get the most bang for the buck. You are actually obtaining more stocks now than you were say a year ago for the same amount of money. Whenever the stocks go back up, you will actually have more shares to gain.

    My suggestion for you is to put about 5% of whatever your salary is into your 401K and then put the remaining into a Roth IRA. If you are afraid of losing any more money just change your portfolio to a non-aggressive or moderate portfolio. You will not gain a lot but you also will not lose alot either.

    All this depends on how old you are too and that will dictate your decision. I am 30 years old so I am not all too worry about it as I have another 35 years to go before I retire. I am sure that I will go through this cycle multiple times before I reach the end of the road.

    Remember, it is never too late or too early to plan for retirement. I wish I would started a lot sooner.
     
  5. i am not stopping contrubutions to my 401k. i just want to switch financial planners
     
  6. soua0363

    soua0363 Master of Nothing

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    What I am doing right now is I am using my financial adviser at Edward Jones to review my portfolio while my 401k is through Allstate. The guy they have doing our 401k is not that knowledgeable. He is more of a salesperson than an advisor. I am sure you can do the same.
     
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  8. My company also cancelled their 401k match as of the 1st.. It was a nice one they matched dollar for dollar.. and with this company I am not allowed to actually cashout my 401k.. my old company you could take it out anytime as long as you paid the penalty and taxes.. I got lucky with my old job as I cashed it in to buy a house right before the market crashed on 9/11 and I didnt get charged a 10% penalty as this was my first home purchase... and most people lost over the normal tax rate of30% anyways...
     
  9. iam20fan - I am a Certified Pension Consultant & have spent nearly a decade working on qualified retirement plans (401(k) is a qualified plan) & have several other professional designations including Qualified 401(k) Administrator - if you have ANY specific questions feel free to PM me and I will answer them for you. To clear up a few things:

    The plan's adoption agreement governs the operation of the plan. You don't have the right to get a copy from your employer, however your employer is required to provide you with a Summary Plan Description. The SPD is the "plain english" version of the plan operation made for employees to understand how the plan operates. You should request a copy of the SPD and it should clear up any issues you have.

    An employer can stop making contributions to a plan in many methods. If the plan has a fixed match written into the adoption agreement, they simply execute a plan amendment and provide the employees with the required notification (Summary of material modification). Many plans have what is known as a discretionary employer match which allows the employer the discretion to determine how much they match. This info will be in the SPD.

    You ALWAYS have the right to stop deferring into the plan at any time. Simply complete a salary deferal election form indicating you wish to stop contributing - this is required for the payroll department to stop withholding.

    To take a distribution from a qualified plan, a participant must incur a "distributable event" as defined by the DOL. Generally speaking this means, retirement (as defined by the adoption agreemnt, standard is age 65), termination, disability, or death.

    Other methods for distribution (once again check the SPD as the plan's adoption agreement governs everything) are:

    Plan Loans, Hardship distributions, or as mentioned in-service withdrawals.

    A hardship distribution can be taken to pay for funeral expenses, post-secondary education, medical expenses, to prevent eviction/foreclosure, or to repair damage to your home in excess of 7.5% of your AGI. BEWARE when taking a hardship withdrawal as your employer will only withhold 10% federal taxes, 0% state. In addition, if you are under age 59.5 you will incur a 10% early withdrawal penalty - so you will be screwed when you file your tax return. Also, you will not be permitted to contribute into the plan for 6 months form the date of withdrawal by law. The IRS penalizes you
    because they have allowed you to contribute these funds free from income tax - you pull it out and they want their share right away (as always).

    Most plans that provide for in-service withdrawals don't allow them until age 59.5 for the reasons stated above (10% penalty). Many plans permit them only at the plan's normal retirement age - check your SPD.

    As far as the investing is concerned:

    The majority of 401(k) plans permit the employee to control the investment of their money. However, the plan typically limits the employee to invest only in the funds offered in the plan - meaning you can't just roll your funds to another advisor. There are an extremely small percentage of plans that do permit this - I doubt your's does. Generally speaking a financial advisor must be a RIR (registered investment representative) to have the necessary selling agreements with the vendors in the 401(k) world. A great deal of financial planners are RIA (registered investment advisor) and do the majority of their work on the personal side.