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  • Dec 7, 2008, 12:28 PM
    Death Benefits from 401k
    Hello, I am trying to help my aunt. My uncle passed away almost 2 years ago and he left her his 401k and we are trying to figure out what to do with it. She initially left it with the company, but now I am wondering if we should move it to an IRA account or something. I guess I have just been thinking wouldn't it be safer with the economy and all, what if that company were to go bankrupt or something wouldn't she lose it. Help? What should we do?
  • Dec 7, 2008, 12:46 PM

    The money is not with the company but with an investment firm that is managing the plan for the company. In addition, the funds are not under the company's control. If it goes bankrupt, the funds will still be with the investment firm.

    What you really need to look at is what vehicles the funds are invested in. You have to compare that with your aunt's risk tolerance. Does your aunt need the money now? If the funds were heavily invested in the stock market, it might be wiser to leave the funds in for the long term otherwise she will lock in paper losses.
  • Dec 8, 2008, 07:19 AM

    If your aunt does not need the cash, then her only concern is whether the investment options available through the 401(k) plan are as good as she could get if she were to move the funds to a rollover IRA account. There are lots of options out there, and if she is up for a little research I would bet that she can probably fund a rollover at a low-cost house such as Fidelity, Vanguard, T. Rowe Price etc. or a brokerage like Schwab and find some very good, low cost investment choices. Personally, that's what I would do (and have done when I left my former employer). If she goes that route, she should do a direct rollover - the investement house will handle all the paperwork on her behalf, and it avoids the paperwork mess of taking a withdrawal from the 401(k) and moving it to an IRA on her own (which could trigger a taxable event if she doesn't do it just right). But as Scott says, don't worry too much about the company's possible bankruptcy affecting the safety of her investment - more important are the choices she makes for her investments.

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