Change in plan or custodian due to a corp. bankrup

L1: Change in plan or custodian due to a corp. bankrup

I currently have my “pot” in a former employer”s 401K. I”m 52, not currently employed, and considering starting a 72T withdrawal.However, the former employer has recently filed for chapter 11 protection. Their future does not look very secure. If I initiate a 72T SEPP program, and they default in paying the current custodian at sometime prior to age 59 1/2, what happens?

My concern is that I”ll have to move funds to an IRA; or there becomes a different custodian and during the transition something happens to my withdrawal/payment (recalculated, missed,…who knows??); the company fails to pay the custodian;….Whatever could happenmay happen beyond my control or knowledge that disturbs the planresulting inthe IRS looking for the 10% penalty…

Currently I don”t want to move to another IRA program, as this one allow me to switch between funds with minimum hassle or cost. I also have some post tax money (both pre ”86and post ”86) rolled into the 401K, afraid that might present some problems in moving all the funds……

Neither the former employer or their custodian would/could answer my questions, and my local financial planner is not familiar with companies in bankruptcy.

The deadline is not approaching fast, but I do want to make intelligent plans for the future, ashistory has shown that my planning over the past 28 yearsdidn”twork too well…

Comments?2004-01-26 18:46, By: Bob L., IP: [4.72.87.134]

L2: Change in plan or custodian due to a corp. bankrupHello Bob:
The good news — your money is in a 401(k) plan; the bad news — your ex-employer is going bankrupt. Actually, what really occurs is that your contributions to the plan AND any employer matching/profit sharing contributions are paid to a separate trust which is not involved in the bankruptcy other than to the extent that the trust may hold shares in the company.
My advice — get out now. Bite the bullet and do a rollover to an IRA at the discount broker of your choice (which also offer no/limited hassle mutual fund switching). You will sleep better at night and will have a broader array of investment choices.
TheBadger
wjstecker@wispertel.net
2004-01-26 20:30, By: TheBadger, IP: [38.116.134.130]

L2: Change in plan or custodian due to a corp. bankrupI completely agree with The Badger on this one. Start moving the K-Plan money as soon as you can. Also, the 72(t) or SEPP Distribution is from an IRA and not a 401(k), so the move must be made before you can set up any distributions like your want. As far as your comment about your “local financial planner is not familiar with companies in bankruptcy” it really doesn”t matter. You want someone familiar with processing Rollover IRAs and working with SEPP Distributions.
As to your “pre 86” and “post 86” after tax money that you moved into your K-plan, hopefully The Badger or GFW will comment on this aspect. My thought is that since the principal amounts have already been subjected to taxation, then you might want to accept distribution on this money which will come out tax-free and penalty free, and only the growth on this money and the other “before-tax dollars” will be part of the Rollover IRA. Depending on the amount of this “after tax money,” you might want to put it into the bank and use that for a while instead of starting the SEPP immediately, or if really significant, consider a Non-qualified investment strategy.
Good luck
Jim2004-01-29 12:38, By: Jim, IP: [68.1.147.61]

L2: Change in plan or custodian due to a corp. bankrupHello Jim:
In your reply; you said:
Also, the 72(t) or SEPP Distribution is from an IRA and not a 401(k),
I am afraid that this incorrect. IRC 72(t) applies to “retirement plans” elsewhere defined as: 401(a)”s; 403(b)”s; 401(k)”s & 408(a)”s also known as IRAs.
TheBadger
wjstecker@wispertel.net
2004-01-29 12:56, By: TheBadger, IP: [38.116.134.130]

L2: Change in plan or custodian due to a corp. bankrupGood afternoon, Badger:
Thanks for your comments to correct my error about 72(t) applying to more than IRAs. I have only used this method with IRAs and I suspect that is the predominant use. From a practical stand point I would think trying to do a 72(t) from a K-plan or the otherscould have some real drawbacks. I haven”t found too many custodians whowould bereal excited about being willing to provide this service, eventhough it”s part of the code. One big problem is that sponsors (employers)are subject to changing the platform for their Qual planat will which changes the investment options. Usually when changes like this are made the money goes from an “invested” position to the “fixed” option, and then a new plan has to be developedutilizing thenew investment options; usually all new mutual funds. And when a company makes a change like this, as far as I have seen, it affects current and formet employees alike. At least by doing the Rollover the person has control over what”s going on and can make small changes like replacing one or two funds instead of changing the whole basket. The recent mutual fund fiasco has probably created quite a mess in the Qualified plan arena.
Again thank you for pointing out this error I made about SEPP only applying to IRAs.
Jim2004-01-29 13:18, By: Jim, IP: [68.1.147.61]