Are my 401k plan funds protected?

[cyberpj]

I was just telling someone the other day I was tempted to cash out while I was sure I could still get to my own money in 401k plan but he said that 401k plans are protected, real money kept separate from investment firm funds used to play the market.

Do you know if that's true?
Is it safe to leave our funds in 401k
(I moved them all to money markets fund last June.)

Thanks for any info.

[MarianJack]

1. The Funds in any 401k...

...respond to the market. How they perform depends on what you're invested in.

If you want to preserve as much as you can, you may want to consider selecting a stable value option. All plans have that, although it may have a differnt name.

As far as protection of funds, My wife and I personally know 2 people who lost 100K+ back when McSame was telling us that the fundamentals of the economy were strong.

Also, if you're still working with the company, you almost certainly won't be able to close the 401k. You can always stop contributing. you may be able to make a hardship withdrawal for certail specific reasons. If you do that, you'ld better keep records showing that you actually used the funds for the hardship. If not, an IRS audit could be decidedly unpleasant. Any withdrawal before age 59 1/2 is subject to a 10% penalty for early withdrawal as well as state & federal taxes (20% will automatically be withheld for fed tax except in the case of a hardship withdrawal, where you may be able to choose reduced or no withholding. Some states have mandatory state withholding also).

You may be able to borrow, but repayment is made via payroll deduction.

These are regulations that the 401k sponsors are required to follow by Federal law, so please don't tell me that it's your money. I'm only saying what is.

I worked for a company that kept records of 401k plans for 2 years, so I know the basics.

BTW, I'm NOT giving you advice. I'd have to be licensed to do that.

PEACE!

[cyberpj]

4. It's Vanguard. I moved all 'diversified' money into 'Vanguard Retirement Savings Trust' last June.

I don't think I phrased it right but my question was whether or not it is protected from being used and/or lost by Vanguard.

I felt stable because I moved all assets to Vanguard Savings Account last June but I was wondering if even that could be lost or was protected, like bank savings.

=======================================================
What If Vanguard or Fidelity Went Bankrupt?
http://www.mymoneyblog.com/what-if-vanguard-or-fidelity-went-bankrupt.html

What if my mutual fund company went bankrupt? I mean, I have a lot of money in Vanguard and Fidelity right now. What happens if one of them “pulls an Enron” or simply runs out of money?

One source of information is this 2004 Money magazine article written shortly after previous mutual fund scandals:

What happens if my fund company fails?
Your money is safe. Under the Investment Company Act of 1940, which governs the industry, each fund is set up as an individual corporate entity, with its own board of directors. Essentially, your fund hires the fund company to manage its assets. If the company were to file for bankruptcy, its creditors would not be able to touch the funds’s assets. And the fund’s directors could immediately hire a new manager, pending shareholder approval.

[MarianJack]

6. Very True.

Creditors (or the company) can't touch your 401k. In that sense it's very safe.

PEACE!

[alc]

2. depends on what they are invested in and feds leaving them alone

You should be able to put them into the market or keep them in "safe" investments. If you aren't given those options you can move to a different manager. They cannot be put into investments that you didn't approve (you'll probably approve the category - safe to risky - not the specific stocks)

There has been talk in DC for 10-20 years about nationalizing 401k and IRAs. There's no chance of that happening (I hope). If it does happen, expect your funds to be handled the way SS has been handled. If you like the status of SS you don't need to worry. If aren't happy with SS this should scare you and you should cash out if the talk starts looking like it may occur. There's also been talk of a one time tax. If you will retire soon, it's not a big issue. But if you have decades to go, this could significant impact on the amount you retire with.

[A HERETIC I AM]

3. The first paragraph of your post has a couple of inaccuracies.

You should be able to put them into the market or keep them in "safe" investments. If you aren't given those options you can move to a different manager. They cannot be put into investments that you didn't approve (you'll probably approve the category - safe to risky - not the specific stocks)

1) As a general rule, 401(k) plans do indeed offer choices from very safe, like Money Market or even cash accounts, to very risky, such as funds that invest in the developing world.

2) The overwhelming majority of 401(k) plans do NOT allow the participant to "move to a different manager" if by that you mean another plan custodian. The only movement a participant may perform is from one offered fund to another.

3) While the statement "They cannot be put into investments that you didn't approve" is basically correct, it is possible a participant could be investing in something he/she doesn't really like or want to out of shear ignorance of what each fund choice is all about.

4) The possibility of buying individual stocks through such plans is very limited, with the exception of company stock. Some plans offer company stock, even though the company is not publicly traded (Publix Supermarkets and Penske Truck Leasing being two noteworthy examples of this). Most publicly traded companies offer the option to purchase shares of the firm, but this should be done cautiously - just remember that most of the money lost to Enron employees in their plans was in company stock.

[MarianJack]

7. Some, But not all, 401ks offer...

...a self directed option where you can take a portion of your account (very occasionally all of it) and basically play the market. Some participants love it, some get their heads handed to them.

Results can frequently depend on the investor's skill, but in times like 2008 when mcsame was telling us that the fundamentals of the economy were strong, just about everyone will lose. On the other hand, times like the Clinton era, any dummy is likely to benefit.

PEACE!

[A HERETIC I AM]

10. As I said...

"The possibility of buying individual stocks through such plans is very limited"

Perhaps I should have worded it thus;

"Plans that allow participants to purchase individual equities and other securities are rare."

But you are correct. They exist, but they aren't the norm, nor are they all that common, though it seems to me they are becoming more so. I think that is a good idea, but picking individual stocks is VERY risky for the novice.

Peace backatya!

[MarianJack]

11. In My College Poker Playing Days I'd Have Said...

...I'll call your Peace backatya and raise you a howdy! :hi: :patriot:

[cyberpj]

5. My question was more about my Fund protection- I'm with Vanguard - I found this online:

I felt stable because I moved all assets to Vanguard Savings Account last June but I was wondering if even that could be lost or was protected, like bank savings.

=======================================================
What If Vanguard or Fidelity Went Bankrupt?
http://www.mymoneyblog.com/what-if-vanguard-or-fidelity-went-bankrupt.html

What if my mutual fund company went bankrupt? I mean, I have a lot of money in Vanguard and Fidelity right now. What happens if one of them “pulls an Enron” or simply runs out of money?

One source of information is this 2004 Money magazine article written shortly after previous mutual fund scandals:

What happens if my fund company fails?
Your money is safe. Under the Investment Company Act of 1940, which governs the industry, each fund is set up as an individual corporate entity, with its own board of directors. Essentially, your fund hires the fund company to manage its assets. If the company were to file for bankruptcy, its creditors would not be able to touch the funds’s assets. And the fund’s directors could immediately hire a new manager, pending shareholder approval.

[bemildred]

8. The short answer is "no". Lots of people have already been taken to the cleaners. nt

[Yavin4]

9. When You're Investing in the Market, There's No Such Thing As Safety

ALL equities are greatly exposed to systematic risks. For example, if Bank of America declares bankruptcy, the equity markets will fall on the news and fall hard. If Greece defaults, if the Euro collapses, etc., etc., etc.

Even if you move your money to a money market fund, inflation will slowly eat away at its value as the interest rate that you're getting is less than the CPI.

[roamer65]

12. No....except for one caveat.

The Federal Reserve will do everything in its power to defend the value of money market funds. The will create as much money as needed to prevent seizure of the money markets. Right now, the safest place to place 401K money is in money market funds. But, those dollars will not buy you very much fairly soon.