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Guest Carl C

"Changing" companies, opportunity to move 401K to IRA?

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Guest Carl C

For the last 4 years our company contracted with an employee leasing plan. Technically, we were employees of the employee leasing company. The leasing company offered a 401K plan, of which I contributed through payroll deductions.

Now the company I report to work for is cutting ties with the employee leasing company, taking the employees and payroll back in house. We've been told that technically, we'll be working for a "new" employer. The company is negotiating with the current TPA (third party administrator) to either continue the existing 401K after the anniversary date lapses at the end of the year, switch to a new plan with the current TPA, or change TPA/plans all together. I'll probably continue contributing to the 401K when the details are worked out, primarily for the matching contributions and profit sharing. But overall, I'm not happy with the investment options and fees of the 401K offered by the TPA. (I't still up in the air whether we'll stick with that administrator or look for another with better investment choices).

That being said, is there an opportuinity to move (roll over?) the existing balance to my current traditional IRA, where I'm free to invest in individual stocks or ETF's? Some of us believe the opportunity exists, because (again, technically) we are changing employers. I'll still participate in the 401K, but would rather have the current balance in a more flexible investment vehicle.

As always I value your opinions and comments.

Carl C

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You cannot roll to an IRA. See revenue procedure 2002-21. Under that procedure you are "technically" the employee of your worksite employer and never where the employee of the leasing company despite what you have been told.

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Guest Carl C

Alan, thanks for the clarification.

What would happen if the company decided there was a better plan with another TPA, and our company signed up with them? Do I then have an opportunity to move the funds to an IRA? (I'm assuming my other options were to roll the funds to the new 401K or keep the funds in the old 401K).

I'm just looking for any opportunity to move the funds to an IRA, short of quitting.

Carl C

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There is no way short of quiting. The new plan would be deemed a successor plan of the worksite employer and a spinoff from the leasing company plan would take place with all assets being moved to the new plan. Unfortunately the worksite company cannot terminate the leasing company plan, only its participation in that plan; plan termination is one way of getting IRA rollovers for everyone, but that is not an option in your case.

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You'd need a distributable event to get the 401k money out. For example, if you are over 59.5, for example. Possibly the plan permits in-service distributions, so you may be able to get the match or profit-sharing money out, but that would depend upon the terms of the plan and how long the money has been in the plan.

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Not disagreeing with prior posts, please clarify: the orginal post implies that you might be participating in the same plan after this "transition". Correct? (Remember, the plan is sponsored by the employer, not the TPA.)

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