A question about timing, my 401K rollover, and the Wall Street bailout plan.

September 25, 2008 8:57 AM

A question about timing, my 401K rollover, and the Wall Street bailout plan.

I had two separate 401K accounts at Fidelity Investments: one from my current employer, and another, larger one from my previous employer. The larger one had not been performing very well, and the fund selection available to the account wasn't very attractive. On September 12, after speaking with a Fidelity representative, I decided to roll the old account into the new one.

Here is where it gets interesting: 401K rollover at Fidelity isn't an entirely electronic process -- a fact that may be true for other institutions as well, for all I know. Instead, the old account was closed out, and Fidelity cut me an actual check for the balance and mailed it to me. The check wasn't made out to me per se, but is payable to the other Fidelity account I will be rolling into, and my instructions are to mail this check back to Fidelity. So I have a physical check for the balance of my old 401K plan sitting on my desk, and it represents a large chunk of my current retirement savings (I am 45, fwiw).

In light of the current upheaval in the financial markets and the still-undecided-but-impending bailout plan, is there any advantage to just sitting on this check for a while before I send it in to Fidelity? Would sitting on it for a few weeks or months make a difference? Would it be A Bad Idea? Obviously, the money isn't earning anything at the moment, but it isn't losing anything, either.

I am somewhat surprised to find myself with a "choice" here, and am uncertain of the best thing to do. Thanks for whatever advice you can share.

posted by mosk to work & money (8 comments total)

Surely there's a stable money market or bond fund in your new plan?
posted by mkb at 9:04 AM on September 25, 2008

Agreeing with mkb, but also don't let it sit for longer than 60 days, or it will probably get treated as taxable income (see here), even if you intend to roll it over later.
posted by Doofus Magoo at 9:15 AM on September 25, 2008

You have to deposit the check in the new rollover account within 60 days or you will owe taxes and penalties for what the IRS sees as an early withdrawal. Do not miss this deadline!

As to what to do with the investment, it depends on what investments are available to you in the new account. If you are worried, you could put the money into a bond or stable value fund in your new 401(k). This would be no worse than keeping the check in your drawer.

There is one other possibility to consider. Instead of rolling your old 401(k) into your new 401(k), you could roll it into a self-directed IRA account. Then you would no longer be at the mercy of your employer's 401(k) plan. If you put the money into your new employer's plan, then you are stuck there until you terminate your job. You could invest the money however you like with any custodian you prefer. Call Fidelity and see if the check can be rolled into a rollover IRA. Or you may have to send the check back to your old employer and have them cut you a new check for deposit in an IRA. Just be sure you don't miss the 60 day deadline.
posted by JackFlash at 9:21 AM on September 25, 2008

NTHING Doofus above. You need to move that into the IRA or you'll get socked with your marginal income tax rate + 10% and the money will become regular after-tax savings.

It's easy to park the money in Fidelity treasuries. FDLXX is the ticker you want.

Avoid "agency" or "government" issues -- these still have Fannie and Freddie exposure, even though their debt is supposedly backstopped now.
posted by troy at 9:25 AM on September 25, 2008

NTHING JackFlash, too.

I've had great fun putting my self-directed IRA in such things as SDS and BAC calls this summer. Not recommended for the casual investor, but a lot better return than the 2% I would get in a MM.
posted by troy at 9:27 AM on September 25, 2008

Thanks for the great and rapid advice, folks, and I'll definitely get this rolled into something within the next 50 days (and probably a lot sooner). I just find it interesting to have this check in my hands as the Wall Street mess is unfolding, and want to be sure I take the right course of action, or inaction...but it sounds like action.
posted by mosk at 9:33 AM on September 25, 2008

I am not your tax lawyer or accountant, and this is not tax advice.

Because of this:

"The check wasn't made out to me per se, but is payable to the other Fidelity account I will be rolling into, "

This: "You have to deposit the check in the new rollover account within 60 days or you will owe taxes and penalties for what the IRS sees as an early withdrawal. Do not miss this deadline!"

Is wrong. No 1099-R will be generated, and you have not taken possession.
posted by Kwantsar at 2:18 PM on September 25, 2008

Oops, Kwantsar is correct. You are doing a direct transfer since the check is not made out in your name. Therefore the 60-day rule does not apply. So you can take your time in deciding what to do, but I wouldn't wait too long or the check may be canceled.

However, I believe he is incorrect about the 1099-R. A direct transfer from a qualified plan like a 401(k) is technically considered a distribution and subsequent rollover, so a 1099-R will be sent to you at the end of the year by your old custodian. The 1099-R will indicate that this was a direct transfer and not a taxable distribution. A distribution from a 401(k) is different from a transfer between IRA custodians. When transferring between IRAs you do not get a 1099-R.
posted by JackFlash at 3:43 PM on September 25, 2008