Can I give my 401(k) firm the boot?

@Money January 25, 2012: 4:31 PM ET

NEW YORK (CNNMoney) -- My 401(k) is managed by a brokerage firm that was busted by the SEC for fraudulent practices (although those practices weren't related to my 401(k) plan). Still, I don't want to invest my money with, or pay fees to, to a firm I consider unethical. For now, I've switched all of my money into the bond account figuring it's the safest place to invest until I can figure out what to do. But I'd really like to get into another 401(k) plan. Can I do that? -- Michael S.

The short answer is probably not without considerable effort.

Your 401(k) plan is tied to your job. Unless you start working for another employer that offers a 401(k) and accepts rollovers from other company plans -- as most do -- you're pretty much stuck with your current 401(k), even if you consider the firm that manages it ethically challenged.

That said, you might be able to move some of your money out of your 401(k) and into another tax-advantaged account. But even that may be easier said than done.

One option would be to roll your 401(k) into an IRA. But you would still have to leave your employer to make the move. You can't just do a rollover whenever you want while you're still working at your current firm.

Should I contribute to a traditional or Roth 401(k)?

Another possibility might be to take what's known as an "in-service distribution." This would allow you to draw certain funds from your 401(k) while you're still employed by your company. You could then roll that distribution into an IRA account.

The hitch here is that your plan has to offer in-service distributions. And even though the majority of plans do, there are restrictions as to which funds are eligible for such withdrawals. Most companies limit such withdrawals to older employees. You can check with your human resources department or your 401(k) custodian to see if an in-service distribution is an alternative for you.

Those are pretty much your choices outside of something really extreme like taking out a 401(k) loan and investing the proceeds, a move that, in my opinion, would make no sense.

You can stop new money from going into your 401(k), however, by stopping your contributions to your plan. You could then contribute to a traditional or Roth IRA account, assuming you qualify.

But this tactic has potential drawbacks. The maximum you can contribute each year to an IRA is now $5,000 ($6,000 if you're 50 or older). The max for 401(k)s is much higher: $17,000 starting this year -- $22,500, including the $5,500 catch-up for participants 50 and older -- although companies can effectively set lower ceilings.

The point is, if you're currently salting away more than the IRA max in your 401(k), switching to an IRA would dilute your tax-advantaged savings effort. And if your employer is matching any portion of your 401(k) contributions, you'd lose those funds too, further reducing the eventual size of your nest egg.

If you believe your 401(k) money is truly in jeopardy because of fraud or malfeasance on the part of the company overseeing the plan, you should immediately inform your employer, as well as the Department of Labor's Employee Benefit Security Administration.

In 2010, EBSA launched a crackdown on fraud (albeit infrequent) in 401(k)s and similar plans and as part of that effort is offering a list of 10 warning signs that your 401(k) contributions may be being misused.

But it sounds like you're more concerned about the principle here. You don't like having your retirement funds entrusted to a company you feel doesn't act in an ethical way. That stance is perfectly reasonable, particularly in light of financial shenanigans in recent years. I don't see why you shouldn't bring it to your employer's attention. If there are other employees who feel the same way, you might make your case as a group.

Of course, your employer may not see it your way for any number of reasons. And even if your company does decide to make a change, that could take a while.

Ask the Help Desk your money questions

My take is that it wouldn't make sense to jeopardize your retirement security because of the actions of a firm that you neither chose nor had any control over. If I were in your position, I'd probably stay in the plan.

Ultimately you've got to follow your own ethical compass.

Whatever you decide, I don't think putting all your money into the bond account is a good move, as your entire balance would get whacked if interest rates rise.

So while you're mulling your options, keep your account in a diversified mix of stock and bond funds that's appropriate for your age and tolerance for risk.

That may not help with your ethical quandary. But it will assure that your 401(k) remains properly invested until you resolve it.

An earlier version of this story stated the maximum IRA contribution as $17,500 and the catch-up contribution for participants 50 and older as $5,000. To top of page

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