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7 Reasons to Dump Your 401K After a Layoff Pt 2 Money and Risk

Post on: 5 Апрель, 2015 No Comment

3A%2F%2F0.gravatar.com%2Favatar%2Fad516503a11cd5ca435acc9bb6523536%3Fs%3D96&r=G /% By Kim Luu April 19, 2010 June 27, 2010

Reason #2 to Dump your 401K after the layoff: COSTS

Ive probably heard almost all the reasons out there. These are the excuses dealing with costs: Its cheaper to be in the 401K. I can buy institutional funds. The funds are monitored and picked for the company.

Cost who pays the cost on a 401? There are three ways that the costs to maintain a 401K plan are paid:

Fully paid by employer (rare)
Partially paid by employer and remainder paid by participants
Cost spread among all participants in plan (popular).

Depending on the size of the plan (dollars and number of participants), your cost is going to be much higher inside a 401K plan than to manage it yourself. Keep in mind, if your company has been laying off a lot of workers and they are moving out their 401K balances, the costs for the remaining participants will keep going up as the fixed cost gets spread around to fewer people.

Photo Credit Robert McCabe

Costs to maintain a 401K

TPA Third Party Administrator They handle the paperwork to track the plan and to process your request, enrollment and distribution

Payroll Company They collect the money from your paycheck and post to your 401K account This is an extra service that employers have to pay for

Custodian Company holding the funds on your behalf and process sales and purchases.

Mutual Fund Company costs of managing the mutual funds (Large plans may get institutional shares which is cheaper than what you can buy outside unless you have a managed account) Its a wash with what you have to pay outside for a mutual fund

Plan Advisor They chose the mutual funds, review mutual funds progress, do quarterly training at site. Services vary based on companies. Some advisors only charge the fee but have not seen their clients for a decade. The worst one I heard of never showed up since opening the plan 15 years earlier.

Plan Fiduciary Some companies dont want to take the responsibility of being the plans fiduciary and pay for an outside service.

Bonding Companies have to maintain a bond for the 401K plan

CPA Certified Public Accountant Plans with balances over $100,000 have to file a separate tax return. Here is a partial list of other forms that the CPA has to do

Form 5500 Annual Tax Returns

Form 945 Income tax Withheld

Form 990 T- Gross unrelated income

Form 1099R Distribution notice

Form 5329 Additional Tax

Form 5330 Report taxes for over contribution, deficiency, reallocation, etc

No, not always

So, after knowing all the costs that an employer incurs to maintain your 401K, how much are you willing to subsidize their costs with your retirement money now that you no longer work there? You can request a booklet by the Department of Labor that gives a checklist of questions to consider. The choice as always is yours.