Ted's Table

TB: It's somewhat difficult to respond without more detailed information but I'll do my best. First, when you allocate your money among a number of different types of funds, you need to accept the fact that some will do much better than others during any year. In fact during a year when one fund may be up by more than 20%, another fund might lose money.

For example, most 401(k) plans offer an international fund. Most international funds haven't done well during the last couple of years. An investor might react to these results by pulling his/her money out of the international fund. This could be a big mistake because many experts think international stocks will do well during the next couple of years.

The U.S. stock market also produces conflicting results. Stocks don't all go up and down at the same time. For example, on a day when the Dow Jones Industrial Average of 30 stocks rises, we still might see the broader market fall because a greater number of other stocks decline. The market goes through cycles. During a cycle, one type of stock will do much better than other types.

Some examples of different types of stocks are large-cap value, large-cap growth, mid-cap value or growth, small-cap value or growth, sectors stocks like tech companies, etc. When you invest in a fund, you should know what type of stocks the fund manager buys. Your goal should be to allocate your money across this broad spectrum of stocks including some bonds and/or a stable-value fund. The best alternative is to use the services of a registered investment advisor to help you select your funds. If you don't have access to that type of service, the next best alternative is to seek help from the resources available to you from the financial organization that manages your company's 401(k).

Once you establish your allocation strategy, stick with it. Successful investing requires patience over long periods of time. Moving money from fund to fund based upon short-term results is likely to lead to failure and frustration.

TB: Your former employer should have filed a report concerning your account with the IRS. The IRS then forwards that report to the Social Security Administration. You should be able to obtain that information from Social Security's customer service department by calling 1-800-772-1213, or at their web site at: http://www.ssa.gov/service.html

Another possibility is to contact the financial organization that handled the plan, if you have this information. You should also contact anyone you know from your former employer to see if they can help.

TB: The $50,000 you take as a distribution won't be subject to the 10% tax penalty if you leave your employer after attaining age 55. This amount will be taxable as ordinary income. You should consider taking this distribution during a year when you have little or no earned income.

TB: If the loan wasn't repaid, you would have been required to pay tax on the unpaid loan balance. Apparently this money and the last $400 the employer contributed were never put into the plan by your former employer. If this is correct, you are a creditor. It will take a while before the situation is ultimately resolved. Your claim will have a high priority in the bankruptcy proceedings so you may eventually get some or all of your money. If you don't get it, I'm not certain whether you will be able to claim this loss as a tax deduction.

You never paid tax on the $400 that your employer contributed, so I don't think you can deduct it. The loan repayment is different because it came from your after-tax income. You should consult your personal tax advisor regarding the potential deductibility of this loss and when would be the proper time to claim the deduction.

TB: Rollovers from a traditional IRA to a 401(k) are permitted only if the money in this account is from another tax-qualified, employer-sponsored retirement plan (sometimes referred to as a "conduit IRA"). You aren't permitted to roll this money into the 401(k) if it contains any IRA contributions.

When you do such a transfer, your employer will treat this amount as a rollover rather than a loan repayment. They will retain the unpaid loan balance on the plan records as an amount you must continue to repay from your after-tax income.

TB: You're correct that substantially equal annuitized distributions for five years from the IRA would work. The response I gave was based upon my perception that the person who asked the question didn't want to get involved with an annutized payment structure.

Ted Benna, creator of the first 401(k) retirement savings plan, will answer your most intriguing questions every Monday. With over 30 years of experience as an employee benefits consultant, Ted is a nationally recognized expert on benefits issues. He has authored two books, Helping Employees Achieve Retirement Income Security and Escaping the Coming Retirement Crisis, and is President of the 401(k) Association. Ted is a frequent speaker at meetings of 401(k) plan sponsors and participants. His articles and comments have appeared in numerous publications, including The New York Times and The Wall Street Journal.

The information provided here is intended to help you understand the general issue and does not constitute any tax, investment or legal advice. Consult your financial, tax or legal advisor regarding your own unique situation and your company's benefits representative for rules specific to your plan.

Ted's Table

TB: It's somewhat difficult to respond without more detailed information but I'll do my best. First, when you allocate your money among a number of different types of funds, you need to accept the fact that some will do much better than others during any year. In fact during a year when one fund may be up by more than 20%, another fund might lose money.

For example, most 401(k) plans offer an international fund. Most international funds haven't done well during the last couple of years. An investor might react to these results by pulling his/her money out of the international fund. This could be a big mistake because many experts think international stocks will do well during the next couple of years.

The U.S. stock market also produces conflicting results. Stocks don't all go up and down at the same time. For example, on a day when the Dow Jones Industrial Average of 30 stocks rises, we still might see the broader market fall because a greater number of other stocks decline. The market goes through cycles. During a cycle, one type of stock will do much better than other types.

Some examples of different types of stocks are large-cap value, large-cap growth, mid-cap value or growth, small-cap value or growth, sectors stocks like tech companies, etc. When you invest in a fund, you should know what type of stocks the fund manager buys. Your goal should be to allocate your money across this broad spectrum of stocks including some bonds and/or a stable-value fund. The best alternative is to use the services of a registered investment advisor to help you select your funds. If you don't have access to that type of service, the next best alternative is to seek help from the resources available to you from the financial organization that manages your company's 401(k).

Once you establish your allocation strategy, stick with it. Successful investing requires patience over long periods of time. Moving money from fund to fund based upon short-term results is likely to lead to failure and frustration.

TB: Your former employer should have filed a report concerning your account with the IRS. The IRS then forwards that report to the Social Security Administration. You should be able to obtain that information from Social Security's customer service department by calling 1-800-772-1213, or at their web site at: http://www.ssa.gov/service.html

Another possibility is to contact the financial organization that handled the plan, if you have this information. You should also contact anyone you know from your former employer to see if they can help.

TB: The $50,000 you take as a distribution won't be subject to the 10% tax penalty if you leave your employer after attaining age 55. This amount will be taxable as ordinary income. You should consider taking this distribution during a year when you have little or no earned income.

TB: If the loan wasn't repaid, you would have been required to pay tax on the unpaid loan balance. Apparently this money and the last $400 the employer contributed were never put into the plan by your former employer. If this is correct, you are a creditor. It will take a while before the situation is ultimately resolved. Your claim will have a high priority in the bankruptcy proceedings so you may eventually get some or all of your money. If you don't get it, I'm not certain whether you will be able to claim this loss as a tax deduction.

You never paid tax on the $400 that your employer contributed, so I don't think you can deduct it. The loan repayment is different because it came from your after-tax income. You should consult your personal tax advisor regarding the potential deductibility of this loss and when would be the proper time to claim the deduction.

TB: Rollovers from a traditional IRA to a 401(k) are permitted only if the money in this account is from another tax-qualified, employer-sponsored retirement plan (sometimes referred to as a "conduit IRA"). You aren't permitted to roll this money into the 401(k) if it contains any IRA contributions.

When you do such a transfer, your employer will treat this amount as a rollover rather than a loan repayment. They will retain the unpaid loan balance on the plan records as an amount you must continue to repay from your after-tax income.

TB: You're correct that substantially equal annuitized distributions for five years from the IRA would work. The response I gave was based upon my perception that the person who asked the question didn't want to get involved with an annutized payment structure.

Ted Benna, creator of the first 401(k) retirement savings plan, will answer your most intriguing questions every Monday. With over 30 years of experience as an employee benefits consultant, Ted is a nationally recognized expert on benefits issues. He has authored two books, Helping Employees Achieve Retirement Income Security and Escaping the Coming Retirement Crisis, and is President of the 401(k) Association. Ted is a frequent speaker at meetings of 401(k) plan sponsors and participants. His articles and comments have appeared in numerous publications, including The New York Times and The Wall Street Journal.

The information provided here is intended to help you understand the general issue and does not constitute any tax, investment or legal advice. Consult your financial, tax or legal advisor regarding your own unique situation and your company's benefits representative for rules specific to your plan.