Can My 401(k) Account Be Locked Up Due To Fees Owed By My Ex-Employer?
By Judy Feldman

(MONEY Magazine) – Q. My employer closed its doors in August, and the company is planning to file for bankruptcy. Not only did I lose my job, but the firm that administers our 401(k) plan refuses to release any funds until certain administrative fees are paid by my former employer. How can I get my money? CHAD CARSON REDWOOD CITY, CALIF.

A. The good news is that your 401(k) account is your private property and the money cannot be used to pay off your employer's creditors. However, a bankruptcy can and often does hold up the process of your getting to your own money, admits Gloria Della, spokeswoman for the U.S. Department of Labor. Your best recourse, says Della, is to call the dol's Pension and Welfare Benefits Administration's new toll-free help line (866-275-7922) and report all the details to a benefits adviser.

He or she will research your claim and serve as an intermediary on your behalf when dealing with your employer and 401(k) administrator. If the problem involves other employees, the agency's enforcement arm will take over the investigation to ferret out and resolve any wrongdoing according to the law and the rules of your specific plan. The agency will follow through until the case is resolved.

Q. I was laid off last April, and I must decide whether to take my pension as an annuity that will pay about $800 a month for life or as a lump-sum distribution that will trigger taxes and a 10% early-withdrawal penalty. I'm 51 years old and don't plan to return to work full time, so I need this money to help pay expenses until I'm 59 1/2. That's when I can access my other retirement accounts with no penalty. Any advice? C.C. PRINCETON JUNCTION, N.J.

A. With the annuity, you're locked into the $800 monthly payout for life. That may not be adequate for your needs. If you prefer more flexibility, want to delay paying taxes and are looking for a way to escape the penalty, consider rolling the money over into an IRA. The annuity-exception rule of Section 72(t) in the Internal Revenue code lets you set up a schedule of penalty-free withdrawals. Although the minimum required distributions will be calculated based on your life expectancy, you're stuck with the schedule for only five years or until you turn 59 1/2, whichever is the longer period. At that time you can suspend the distributions until you are 70 1/2 (for a traditional IRA) or reduce or increase the amount of your monthly withdrawals. Caveat: This may sound simple, but it isn't. Consult a tax adviser.

Q. As part of a divorce settlement, I received a personal check for $25,000 from my ex-husband. Do I have to report that money as income? ANGELA TRULUCK ANCHORAGE

A. No. Proceeds of a divorce settlement (other than alimony) are generally not taxable to the recipient.

Q. I have $765,000 invested in taxable accounts (holding stocks and mutual funds), IRAs and 401(k)s from previous jobs. I'm 56 and, at most, six years from retirement. I'm wondering: Should I consolidate these funds? NAME AND LOCATION WITHHELD

A. Your best bet is to combine your retirement accounts. The tax laws allow you to blend your iras and 401(k)s into one IRA. Rolling your 401(k) plans over into an IRA also will give you more flexibility concerning your choice of investments and beneficiaries, especially if the options in your company plans were limited. Once you retire, be sure to maximize your tax savings by tapping your taxable accounts before dipping into your tax-sheltered plans, whenever possible.