401k reallocation
I recently discussed with a CPA having his client rollover her 401k to an IRA with our firm. He wanted to keep the funds within a qualified plan to avoid any potential objections that a future employer might have with accepting IRA rollovers into their plan. She is in her early 30’s, and his feeling was that future allocations of forfeitures might help her grow the retirment plan better than an IRA with similar investments. Do forfeitures in a qualified plan get allocated based on balances held in the plan or on other factors? Any statistics on how much that could really mean to her?
Permalink Submitted by mk foss on Thu, 2012-12-13 18:16
Forfeitures are allocated to remaining plan participants when another employee leaves the plan before their benefits are fully vested. It depends upon the turnover of the employer. The actual method of allocating the forfeitures can vary but if you’re not in the plan you won’t get any of them.
Permalink Submitted by Alan - IRA critic on Fri, 2012-12-14 04:05
I agree. Just leaving an old 401k with the former employer does not make her a participant. Therefore, she will not receive any forfeitures to her account. If the plan provisions provide for forfeiture credits to their accounts, it will only be to those accounts who are active participants.If she lives in a state that does not have good creditor protection for IRA accounts and she has an exposure, that might be a reason to leave the 401k in place.