401k administrators

[JimPete]

I have a question. What happens if the administrator of your 401k plan (i.e. Fidelity, T Rowe Price, etc.) goes out of business? This hasn't happened to me but upcoming changes to our plan has given me pause. I realized that I don't know the answer for sure. My feeling is that because the money is in a number of different mutual funds and not really with the administration provider that the accounts would just be transfered to another admin.

Your thought please.

Thanks

Jim

[Russ_Boston]

I would think you are correct. The actual money isn't with the admin.

[aljetmet]

True but you can have say Fidelity mutual funds at Fidelity.
What happens if Fidelity goes out of business?

I guess the real issue is why they are going out of business.
If it's fraud there is big trouble. If not maybe not so much.

So this begs the question.

How much money should you max out at one particular firm?
A dollar amount and/or what percentage of your total wealth?

[CTgolfer]

My understanding is that you need to check with your administrator to better understand how beneficiary payouts are handled. For example, I have two 401K's with two previous employers both using Fidelity. Both 401K's have my husband as my primary beneficiary with our children as contingent beneficiaries. If something happens to me, my husband can retain the 401K as is and is not required to cash it in and incur tax consequences. If something happens to my husband, our children would be required to cash it in within a certain period of time and will incur large tax consequences. The 401K administrator dictates these rules. We are looking at moving the 401K to a stretch IRA where tax consequences will only be the result of moneys intentionally withddrawn.

[aljetmet]

I'm don't think if say a 401K passes to children that they would have immediate tax consequnces. It would pass on as a rollover and they pay tax on what they take out. I went over this with Fidelity and that is my understanding.

[Russ_Boston]

Even if Fidelity went under the stocks that are owned inside the Fidelity mutual fund wouldn't be gone. I still think everything would be solvent.

[gongoozler]

I'm don't think if say a 401K passes to children that they would have immediate tax consequnces. It would pass on as a rollover and they pay tax on what they take out. I went over this with Fidelity and that is my understanding.

You maybe confused about the rules of a Roth IRA verses a regular IRA . . . a Roth IRA that is passed does not have immediate tax consequences but a regular IRA does.

[Bill-n-Brillo]

I found this to be interesting reading:

http://www.forbes.com/forbes/2010/0628/investment-guide-stretch-ira-beneficiary-five-rules-inherited-iras.html

It certainly shouldn't be considered as "tax gospel" (it is, after all, a magazine/web site article) but it does address the high points of the inherited IRA tax implication issue.

For the real deal, here's IRS Pub. 590 covering traditional IRAs:

http://www.irs.gov/publications/p590/ch01.html

Bill :)

[thistrucksforyou]

You maybe confused about the rules of a Roth IRA verses a regular IRA . . . a Roth IRA that is passed does not have immediate tax consequences but a regular IRA does.

I am confussed...are we talking IRA or 401k here ?

[CTgolfer]

My comments were regarding a 401K that may eventually be inherited by our children. The administrator of my company 401K is Fidelity. In a phone conversation I had with them, I was advised that my husband as the primary beneficiary would inherit the money and not have to "cash in" any moneys and pay tax consequences. However, when my husband passes, or we should both pass at the same time, my children could not keep the 401K but would be required to cash it in within a certain period of time.

To avoid this problem, the funds should be moved to an inherited IRA, also known as a stretch IRA or multi-generational IRA.

[Pturner]

I am confussed...are we talking IRA or 401k here ?

Me too. And didn't Jim Pete ask about what happens if a 401k administrator goes out of business and not about inheritance taxes?