Do You Really Own Your Retirement 401k Account?
More and more 401k retirement accounts are flat out refusing their clients to withdraw their money from their own accounts. To make matters worse in the current economic climate, a lot of the retirement funds cannot seem to get rid of perilous investments in their shaky portfolios.
One fund that has closed early withdrawals for the foreseeable future is Principal U.S. Property. This fund invests in various types of commercial properties which are currently in a severe decline. As of late April 2009, there are nearly $1.1 billion outstanding withdrawal requests for this fund.
Some funds have not closed withdrawals completely but are restricting the amount that can be withdrawn in a given time period.
And, in fairness, there are a number of large employers that have recognized this alarming trend and are proactively re-balancing retirement account portfolios to avoid brutal declines and illiquidity.
401k Accounts Has Limitations
A lot of people had assumed that they could rely on their retirement funds in case of hardship. Even if they have to pay IRS penalties and early withdrawal junk fees, at least there was comfort in knowing their money was there should it be needed prior to retirement age. Well all that has changed and is causing severe hardship to the people that have lost their jobs and are now finding that they cannot draw on their nest egg.
Most people understand, and sign the standard fund disclaimers, that the fund may lose money. However, most people don’t think about the fact that they may not be able to get access to their own money!
How Safe Is Your Nest Egg?
401k accounts are good retirement saving options but the fact that you have very little control, as described above, should make you wonder just how safe most of these funds from an investment perspective.
What if you cannot withdraw the funds and your account balance continually erodes either because of the nature of the fund or poor investment decisions made by its managers? Most people don’t really know what the fund invests in or if the fund exchanges its underlying holdings with other types of securities from entirely different funds. It happens.
It is not just real estate related funds that are a cause for concern. It can be relatively stable funds as well.
So if you have a retirement account, what can you do? Well a couple of things: -
- Take stock of your retirement funds. Find out if there are withdrawal time-based limitations.
- Ride out the storm and hope the money invested in your retirement account will be there for you.
If you have time 10+ years, then this should not be a concern. If you have less than 10 years to retirement age then this is worrisome scenario that you should monitor very closely.
In a follow up article, we’ll show you a way how you can be completely in charge of your IRA account and dictate returns, withdrawals, investment options etc.
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