Part 2: Control Your 401(k) Destiny

  by Tyler Curtis

“It’s my money and I need it now.”

You’ve probably seen the JG Wentworth® commercials that say, “It’s my money and I need it now!”  Well, 401(k) plans dictate how you can have access to your own money.  Yes, it’s your money but you may not be able to get it now!

Believe it or not, many plans only have a full payout option, allowing no partial withdrawals whatsoever to provide an occasional stream of income. Most others have some sort of paperwork requiring you and your spouse’s signatures before they release the funds; therefore, slowing up the process of actually getting you your money.  Oftentimes, there are other restrictions to having access to your money. That’s not very convenient when you’re a participant who needs income to supplement your retirement life style

You also have mandatory 20% minimum federal tax withholding on ANY taxable distribution from your 401(k) plan. But what if you fall into a lower tax bracket and don’t want to overpay taxes like many people do?  Sorry. Federal laws are federal laws.

“Know what you own, and know why you own it.”
– Peter Lynch
A typical, “good” 401 (k) plan might only have 15-20 investment choices available. Many have fewer than that. But there are about 7,000 mutual funds in the financial services industry.  Now if you are like me, I’m hard pressed to believe that any employer-sponsored plan just happened to pick the best 15-20 mutual funds out there when there 7,000 to choose from. 

Most plans limit you to invest only in mutual funds. But are mutual funds really the best option for attaining your investment or retirement income needs? If you’ve been using the Snider Investment Method for a while, you probably agree that mutual funds likely will not provide the long-term income stream that you need. 

Mutual funds are required by the SEC to publish their top ten holdings, but by the time they are published, their portfolio likely has changed dramatically so you never really “know what you own and why you own it.” Even if you were that interested in the top ten holdings, you’re probably more interested in owning common stock rather than funds, but the plan usually severely limits your investment choices. 

Many times the Human Resources department selects what they think are mutual funds for their plan’s portfolio, but in reality, they are not. What has been chosen for you are called commingled pools that are not even regulated by the Securities Exchange Commission! 

True, many 401(k) plans will only allow you to own shares of their company stock in their 401(k) plan. Very few offer brokerage account options and those that do offer very rarely offer the opportunity to trade non-company stock, let alone the ability to sell Puts and Calls (as prescribed in the Snider Investment Method®).

To get the most out of this email series, we recommend that you take the following steps:
    1. For each 401(k) you have, call the plan provider(s) or access your account(s) online.
    2. Find out what kind of withdrawal options are available. Are partial withdrawals allowed? Can you set up installment payments of some type? If so, can you change the terms of those installment payments? Can you take in-service withdrawals (if currently employed and actively participating in that plan)?
    3. Make a list of the investment choices each of your plans have, including ticker symbols.
    4. Find out if your 401(k) plan(s) allows you to have a brokerage account option and if you are allowed to trade stocks in it.
    5. Does your plan’s brokerage accounts allow you to sell covered calls and puts, like in the Snider Investment Method?


What’s Next?
Our next and final post will be released on July 22nd. We will cover 401(k) rules that will potentially have adverse effects on your beneficiaries. 

In the meantime, click here to sign up for our free webinar on all of these important topics that will be on July 29th from noon to 1:00 CST. The webinar will recap the information we’ve covered so far, provide additional specific, detailed facts, and allow you to ask questions. 

Once again, please contact me if I may be of assistance to you. Feel free to email me or call me directly at 972-746-4291.  Also, please pass these e-mails on to other family members and friends who might benefit this information. Remember, 401(Knowledge) is power.

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