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Question:


I recently left a job and my employer automatically rolled my small 401(k) balance (about $2,000) into an IRA. Can they do that?
-CallMeMaybe


Answer:


Yes. One of the provisions of the 2001 law that governs workplace retirement plans is that employers can convert departing employees’ 401(k) balances worth between $1,000 and $5,000 into individual retirement accounts. Those small accounts are costly to maintain, hence the desire to get rid of them, and the alternative of distributing assets in cash raises the chances that employees will fail to roll the assets over themselves, leaving them with less money for retirement plus a current tax bill and possibly a 10 percent penalty to pay. If you had raised the issue with your employer as you were heading out the door, you could have had the option of taking cash or rolling the assets over into an IRA of your choosing. In any case, it’s no big deal. You can do either of those things now if you like.

-Conrad de Aenlle



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