A scary 401K rollover

We had a money scare this week. It all worked out, but I wanted to share the story because knowledge is power – especially when it comes to retirement finances.

For about 10 years, I had an IRA with Morgan Stanley that was a rollover from a previous job’s 401K. I liked and trusted my adviser there, but I wanted my pre-tax money all in one place, so I rolled over my Morgan Stanley IRA to my employer’s 401K, where it did just fine. I left it there after I retired.

We still had a regular investment account with Morgan Stanley and maintained a great relationship with Bob, our Morgan Stanley adviser. With Voya, I was one of thousands. I always valued the level of service Bob provides and talked with him about coming back, but I wanted to be sure I understood the fees.

Bob presented a low-cost plan, and I decided to roll my savings back to an IRA with Morgan Stanley. My employer’s plan was administered through Voya. I called Voya and asked how to get started. First, they tried to talk me into staying. That decision was complicated by the fact my employer is switching from Voya to another company in January. A good time to jump ship.

The next thing I had to do was get Dale to sign a waiver to the annuity that comes with the 401K if I should die. That has to be notarized and then returned via snail mail. Wait a week and then call again. The next complication is about buckets – not all my savings was in one account. I had my regular 401K, which was called the Salaried Savings Plan. I contributed to that, and there was a company match.

The other account is called the Capital Accumulation Plan. That plan was 100 percent funded by the company, but it is also a qualified plan, meaning it is pre-tax and approved for rollover.

I walked through it all with the Voya rep. Seemed pretty straightforward to me. They would mail the checks to me, and I had to pay to expedite them, and then mail them to Bob at Morgan Stanley. That part annoyed me.

A few hours later there was a message on my cell phone about a mistake at Voya, would I please call back? The rep said they canceled the transaction for my Salaried Savings Plan because the balance included post-tax dollars. I couldn’t imagine how that would even be possible. I had a lot of questions the rep couldn’t answer. I said this is my life’s savings, and I do not have a lot of confidence right now. Maybe I please speak with a supervisor?

The supervisor was great. I explained my concerns and confessed I was beyond the extent of my financial acumen. She said some of my 401K contributions were post-tax. It’s all there, but rules for distribution are different. The good news is I’ve already paid taxes on it. My choices were to take that money as a cash payout or roll it over to a Roth IRA. I don’t need the cash now, so Bob set me up with a Roth. Now I would be getting three checks from Voya.

Good news – because of the screw up and subsequent delay, the market went up a bit and my balance increased by a few thousand dollars. I’ll take it, thank you.

Now I have all three checks, which I will mail to Morgan Stanley. It seems like a cumbersome process, but in hindsight, it wasn’t so bad. I just kind of panicked when they said something was wrong with the money. Yikes! I’m a journalism major.

Lessons Learned

• When investing your 401K, be direct in asking about fees. You want to understand how they make their money. Read about fees to help you with some of the lingo.
• Most of the time you can leave your plan invested with your former employer, and it can be a good deal, but they can switch administrators and make other changes that impact you, so pay attention.
• Understand the buckets of money in your plan. I had no idea mine included post-tax dollars. I didn’t even know that was legal.
• Be honest about what you understand and don’t understand. Ask questions until you feel comfortable.
• If necessary, ask to speak with a supervisor.
• Plan ahead. None of this is fast.

I know there are some excellent retirement bloggers out there who have financial expertise. I hope you will come forward and add your insights, correcting me if I got anything wrong.