Liquidating equities in 401(k) rollover
In my experience, most 401(k) plans liquidate assets when a former employee requests a rollover to an IRA held by a new custodian. With the volatility in the stock market, there’s the chance that during the transition, the market will have a few good days that the client misses by being in cash. Why do most plans require liquidation? Have other advisors found a way to rollover assets “in kind” from 401(k) to individual IRAs?
Permalink Submitted by Alan Spross on Mon, 2009-01-05 22:24
The problem is that many plans use proprietary funds or mutual fund groups that many IRA custodians cannot accept. Using cash insures that the direct rollover can be completed without problems.
While mutual fund supermarket firms like Fidelity and Schwab deal with many different fund groups, banks or single mutual fund firms only offer service for a limited group of funds.
If the 401k statement can be reviewed by the receiving firm and written acknowledgement that the holdings are acceptable to them can be provided with the rollover paperwork, some plans may agree to transfer assets in kind.
It might also be possible for an employee to transfer within the 401k plan to more widely held investment options to increase the chances that the new holdings could be transferred.
Permalink Submitted by charles lore on Tue, 2009-01-06 00:54
If you have cash or short term bonds in the ira ( target ira or anyone for that matter) you can always buy an ETF for the amount of days and to the extent your out of the market. The stock funds that wont transfer in kind will go from being in the market to cash and the cash you have in the IRA goes into the market. Ideally your allocation stays the same. Ideally is the key word but you may come close if you think it through.
Dont have IRA funds? Consider this with non IRA money … You’ll either end up with a short term cap gain or loss ….This may be better the opportunity cost of being out of an up market.