Money "trapped" in 401k

[brucec42]

I hope this is the right place to ask this, apologies if it is not. I'm trying to find a way to "rescue" money trapped in a 401k. We have about $60,000 in a 401K account with a current employer where you have the typical 5-6 choices of mutual funds plus an "income" fund that pays about 5%. There are the various big/small/medium stock mutual funds, a bond fund, and one international stock fund to choose from.

I had it in international stocks for a while, but was concerned a US recession might take down the international companies in this fund since they mostly seem to be in global large companies that sell to the US. It's in the income/cash fund now, parked. I know this isn't a great long term place for it.

Is it worse to be parked in dollars than to be in the international stock mutual fund where at least they benefit from the currency gains and their economies (hopefully) can't be as bad over the next few years as I expect here?

Also, is there any severe disadvantage to just borrowing 50% of the 401k funds to invest in things like GLD which I prefer to the plan choices? No problems with the cash flow on a plan loan or repaying it quickly if the job should end. Even taxable (25% bracket, as a "collectable"), the return should likely be higher, right?

[zoog]

I hope this is the right place to ask this, apologies if it is not. I'm trying to find a way to "rescue" money trapped in a 401k. We have about $60,000 in a 401K account with a current employer where you have the typical 5-6 choices of mutual funds plus an "income" fund that pays about 5%. There are the various big/small/medium stock mutual funds, a bond fund, and one international stock fund to choose from.

I had it in international stocks for a while, but was concerned a US recession might take down the international companies in this fund since they mostly seem to be in global large companies that sell to the US. It's in the income/cash fund now, parked. I know this isn't a great long term place for it.

Is it worse to be parked in dollars than to be in the international stock mutual fund where at least they benefit from the currency gains and their economies (hopefully) can't be as bad over the next few years as I expect here?

Also, is there any severe disadvantage to just borrowing 50% of the 401k funds to invest in things like GLD which I prefer to the plan choices? No problems with the cash flow on a plan loan or repaying it quickly if the job should end. Even taxable (25% bracket, as a "collectable"), the return should likely be higher, right?

Hm. Borrowing out of tax-sheltered to invest in collectable-taxed seems a little iffy to me, but I don't have a well-crafted argument to give you. I would say that you should make some guesses as to how much you may lose keeping everything in the income fund or other 401k options, vs. the taxes on GLD et al plus the interest rate charged for taking a loan from the 401k.

Sounds like your international fund is similar to mine. I am inferring from your concerns about it that you understand this is largely an issue of 1) will the rest of the world decouple as the US slides in a recession? 2) if not, how closely will the rest of the world follow us down?

I have no clear answer to these questions myself, although I am skeptical of complete decoupling. Nonetheless, I have left about a quarter of my 401k in the international fund, figuring it will probably do better than the all-US funds.

I recently reallocated about another quarter into the S&P 500 index fund in my plan. Ours happens to be a Vanguard Signal fund... with an expense ratio of 0.09%, it's by far the cheapest way for me to lose money in my 401k.:eek:

[Jay]

My fidelity 403b account just eliminated many of the choices I had prior, like their select gold fund and a few energy funds I like. After many phone calls, I was able to open a brokerage link account through them and now have my retirement go straight into this account and I can dollar cost average into whatever I want. I don't know if this is an option for you, but putting up a fight and asking a lot of questions is sometimes rewarded.

[brucec42]

Thanks, the brokerage option is something I'll have to inquire about.

As for the interest on the loan from the 401k, wouldn't I just be paying it to myself as I pay it back into the plan? I'm fine with that.

[Tulpen]

I hope this is the right place to ask this, apologies if it is not. I'm trying to find a way to "rescue" money trapped in a 401k. We have about $60,000 in a 401K account with a current employer where you have the typical 5-6 choices of mutual funds plus an "income" fund that pays about 5%. There are the various big/small/medium stock mutual funds, a bond fund, and one international stock fund to choose from.

I had it in international stocks for a while, but was concerned a US recession might take down the international companies in this fund since they mostly seem to be in global large companies that sell to the US. It's in the income/cash fund now, parked. I know this isn't a great long term place for it.

Is it worse to be parked in dollars than to be in the international stock mutual fund where at least they benefit from the currency gains and their economies (hopefully) can't be as bad over the next few years as I expect here?

Also, is there any severe disadvantage to just borrowing 50% of the 401k funds to invest in things like GLD which I prefer to the plan choices? No problems with the cash flow on a plan loan or repaying it quickly if the job should end. Even taxable (25% bracket, as a "collectable"), the return should likely be higher, right?
If the options are really bad you should at least consider changing jobs. In that case you can rollover your 401K to an IRA. You can do everything in an IRA except for margin trading, even options and futures are allowed.

Also if the employer does not match a percentage or caps on matching you could invest the difference directly in an IRA up to the legal maximum.

[Captain3D]

Will you not be paying it back with after tax money? As much as I understand your frustration. I dont think borrowing is a good option.


http://moneycentral.msn.com/articles/retire/basics/4714.asp

It's not tax-sheltered money anymore. Whether you repay the 401(k) loan out of your salary or from a bank account, those payments are all made back into the 401(k) with after-tax dollars. So, let's say your monthly interest payment is $300 and you're in the 28% tax bracket. You'll have to make $416 in gross earnings to make the $300 payment. Then, when you retire and take withdrawals, you pay taxes yet again.

phil

[Andreuccio]

If the options are really bad you should at least consider changing jobs. In that case you can rollover your 401K to an IRA. You can do everything in an IRA except for margin trading, even options and futures are allowed.

Also if the employer does not match a percentage or caps on matching you could invest the difference directly in an IRA up to the legal maximum.

C1ue made a suggestion to me at one point, if I remember correctly, to take a part time job at a brokerage house so I could get a self-directed retirement account. I think once you set that up you could then transfer your 401 into that. Sorry I don't have a link.

[Andreuccio]

My fidelity 403b account just eliminated many of the choices I had prior, like their select gold fund and a few energy funds I like. After many phone calls, I was able to open a brokerage link account through them and now have my retirement go straight into this account and I can dollar cost average into whatever I want. I don't know if this is an option for you, but putting up a fight and asking a lot of questions is sometimes rewarded.

Yikes! Really? Why? I have one, too, and I would hate it if they limited choices. What did they do with money already invested in those funds that they closed?

[brucec42]

If the options are really bad you should at least consider changing jobs. In that case you can rollover your 401K to an IRA. You can do everything in an IRA except for margin trading, even options and futures are allowed.

Also if the employer does not match a percentage or caps on matching you could invest the difference directly in an IRA up to the legal maximum.

Well, it's a $150K job in a financial sector where jobs are evaporating, first of all. And it's just $60K, so the costs of a job change would outweigh any savings through more choices in an IRA. Also, if they do lay offs there's a year's salary as a package for not working.

[Jay]

Yeah, it freaked me out too. The mandate came from my employer. Why, I have no idea. And yes, some funds will be mapped to "similar" funds, which in actuality are nothing at all the same. It's funny now that it is in the rear view mirror, because now I have unlimited options. Initially, I couldn't sleep. There are two broad branches of fidelity, one deals only with their specific retirement funds, the other is the brokerage arm. Getting the two to communicate wasn't easy. Now my money is directly deposited into the brokerage arm and is dollar cost averaged into the funds I select beforehand and in what ever percentages I choose. There is no fee because they are fidelity funds (except the actual fund fee which I was paying anyway).

My tin hat theory is that my employer saw some wacknut invested only in gold and energy and felt like they could save him from himself. That or the government has changed my employers fiduciary obligations.

I still fear that at some point the government might manipulate retirement funds to their liking if things get really bad.

[Andreuccio]

My tin hat theory is that my employer saw some wacknut invested only in gold and energy and felt like they could save him from himself.

That wacknut would be me. :(

[FRED]

This is NOT a recommendation. File under "I'm not making this up." Just Put It on My 401(k) Debit Card (http://biz.yahoo.com/ts/080114/10398317.html?.v=2&.pf=retirement)
January 14, 2008 (TheStreet.com)

Borrowing against your nest egg is becoming as easy as stopping at an ATM.

A growing number of companies now offer employees the option of being issued a debit card that taps a 401(k) loan. The card, called ReservePlus, allows workers to withdraw funds from their 401(k)s.

The immediate concern for consumers is that impulse spending desires could trump their long-term savings needs.

Here's how it works: After a company adopts the program, employees can transfer their approved loan line into a ReservePlus account online. Later, they receive a debit card that they can use to take out as much or as little as they need of the loan amount -- on average taking out 35% less than they applied for, says David Young, director of Reserve Solutions at The Reserve, the company offering the cards.

[BoggleFed]

Maybe this is the next big stop on the credit-train? Finance your new Hummer with your 401-k! Yay!

[EJ]

Maybe this is the next big stop on the credit-train? Finance your new Hummer with your 401-k! Yay!

I hypothesized a while back that tapping the 401-k was the next asset for US household to tap after home equity was used up. It's logical if you look at the options.

http://www.itulip.com/images/networth2.jpg


IRAs and Keoghs are a much more shallow well of savings to plunder, but that's all that's left. Home equity is turning negative nationally. Japanese mean household liquid net worth going into their debt deflation was $100,000 vs $46,000 in the US. To me this implies that sales of assets and borrowing against assets to raise cash will occur more rapidly in the US, so a more severe reaction in the US 2008 onward than in Japan 1990 onward.

Pity Editorial Assistant Simone Baribeau who wrote that piece for the financial industry organ TheStreet.com. Shame on Yahoo! Finance for distributing it. Imagine the humiliation of having your employer dump this press release on you to report as "news" because that is the only way to inch ahead in a career as a business "journalist" in a world without business journals.

[Tulpen]

Maybe this is the next big stop on the credit-train? Finance your new Hummer with your 401-k! Yay!
Or a one-year tax free distribution of your 401K or IRA accounts as a stimulus package. :p

[Andreuccio]

Shame on Yahoo! Finance for distributing it.

Yeah, Yahoo! Finance. :mad: Home of "experts" Robert Kiyosaki and Ben Stein. I believe they have no shame.

[WDCRob]

Tax free? Or penalty free? Tax free would make it fairly hard to ignore for most people.

[brucec42]

Of course there's a huge difference between borrowing from a 401k to invest the proceeds elsewhere vs borrowing to consume.

But the point is moot. The company (you can likely deduce which one from headlines) just laid my wife off today anyway as bad earnings news came in. First on my list is to roll that baby over into an IRA and put it to work.

A large lump sum severance pkg will also need investing. So much for not having the cash free to put into gold.

No worries, no debt but a modest 6.25% mortgage (fixed, 30 yr) with over 30% equity. Spent the last year getting that house in order and cleaning up any loose variable rate ends (thanks to books like America's bubble economy!)

[zmas28]

I hope this is the right place to ask this, apologies if it is not. I'm trying to find a way to "rescue" money trapped in a 401k. We have about $60,000 in a 401K account with a current employer where you have the typical 5-6 choices of mutual funds plus an "income" fund that pays about 5%. There are the various big/small/medium stock mutual funds, a bond fund, and one international stock fund to choose from.

I had it in international stocks for a while, but was concerned a US recession might take down the international companies in this fund since they mostly seem to be in global large companies that sell to the US. It's in the income/cash fund now, parked. I know this isn't a great long term place for it.

Is it worse to be parked in dollars than to be in the international stock mutual fund where at least they benefit from the currency gains and their economies (hopefully) can't be as bad over the next few years as I expect here?

Also, is there any severe disadvantage to just borrowing 50% of the 401k funds to invest in things like GLD which I prefer to the plan choices? No problems with the cash flow on a plan loan or repaying it quickly if the job should end. Even taxable (25% bracket, as a "collectable"), the return should likely be higher, right?
I'm in the same place as you are in regards to not enough choices in my 401K at Fidelity. However, I was told you can make a withdrawal from the 401K without any adverse tax consequences. The pretax portion can be rolled over into a traditional IRA for example, and this would allow a wider range of investment options "outside" the 401K . The downside I guess is that the aftertax part is no longer accumulating money on a tax deferred basis.

[metalman]

Of course there's a huge difference between borrowing from a 401k to invest the proceeds elsewhere vs borrowing to consume.

But the point is moot. The company (you can likely deduce which one from headlines) just laid my wife off today anyway as bad earnings news came in. First on my list is to roll that baby over into an IRA and put it to work.

A large lump sum severance pkg will also need investing. So much for not having the cash free to put into gold.

No worries, no debt but a modest 6.25% mortgage (fixed, 30 yr) with over 30% equity. Spent the last year getting that house in order and cleaning up any loose variable rate ends (thanks to books like America's bubble economy!)

the lead time the guys offer here is key. glad to hear you were ready for the one income situation. hope it doesn't last too long.

[brucec42]

I found this on the web today

In the News (More... (http://www.merkfund.com/about-us/news/index.html))
401(k) plans do not offer enough defensive alternatives, portfolio Manager Axel Merk tells Fox Business (http://www.merkfund.com/exit/?url=http://www.foxbusiness.com/article/401k-taking-hit-time-sit-sidelines_446063_55.html?printerFriendly=true).

apparently the Merk Hard Currency fund agrees.