Investing, Retirement 
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Clever 401(k) Rollover “Strategy”

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When call up your 401(k) firm to do a trustee-to-trustee rollover, you’ll have to give them all of your new 401(k)’s information and at the end of the conversation the agent will likely tell you that you have until 4 PM the following day to change the details or even cancel the rollover. So, my friend clued me in on the fact that you can initiate the rollover with one day’s balances, see how the market performs, and then cancel your rollover if the market itself was up. What you won’t be able to do is see how the market trend affected your actual account balances if your 401(k) only offers mutual fund-type investments, but it’s still good information.

For example, let’s say you had an account balance of $10,000 at close of business yesterday. You called into the firm to initiate the transfer and are told you have 4 PM the following day to change or cancel the rollover. Today you see that the Fed did two back flips while Bernake and Greenspan had a economics-love child – so… the Dow went up 5%. Knowing this you can likely extrapolate that you funds are probably up, maybe not 5%, but up nonetheless so you have the option, at 3:59PM, to cancel the rollover and wait another day.

I haven’t done this yet but it seems possible unless I have something fundamentally incorrect in the rollover process. I assume that if you elect to close the account Wednesday, you use Wednesday’s closing balance. It could be possible that if you elect to close on a Wednesday, you transfer with Thursday’s balance. If the latter is the case then this strategy doesn’t work.

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8 Responses to “Clever 401(k) Rollover “Strategy””

  1. Get Real says:

    401(k) /IRA is a long term investment.
    Ofcourse you can game the system to get advantage for a day or two , but the account has a lifetime of 20-30 years.

    Kind of pointless , dont you think ?

  2. jim says:

    Sure, but don’t you think every little edge counts? Why do people clip coupons or look to save a few bucks on an airline flight?

  3. Pete says:

    Sounds a little bit fishy. Some mutual funds just got in trouble for something similar done by traders.

    I would ask your friend when the balance would have been calculated without the cancelation. My belief is that it was the end of the next day at 4:00 anyways (up or down). As with some mutual funds, you need to get your order in by a certain time to make it effective. Thus, if he called and was told that the transaction would happen at 4:00 the next day, of course he could cancel it up until the order is placed. However, he would also gain or loss based on what the market does before then (cancel or not). In other words, his balance he trasnfers is based on the 4:00 market price the next day.

  4. Maybe I’m being thick, but I don’t see the point of doing this. If you were converting a traditional IRA to a Roth IRA instead of doing a trustee-to-trustee 401(k) transfer, then I could see tha advantage — after all, a trad/Roth conversion is a taxable event, so you’d probably rather do it on a down day. But why is it helpful in this case?

  5. Oh wait, I think I get it… You’re assuming that the transfer amount will be calculate at close on Day 1, and then you can cancel on Day 2. So you’d miss out on the Day 2 increase if you went ahead with it. Is that right? But if they give you until Day 2 to cancel, then I’d be willing to bet that the transaction amount is figured on Day 2.

  6. wanzman says:

    Look at it this way, if you had not changed employers, then you would not have had to do a trustee to trustee rollover in the first place, follow? If you had not changed employers then your 401k would suffer that loss or gain no matter what, and you probably would not have cared, because after all it is a long term investment, right? So when rolling over with the new trustee, you will either incur a (most lilely small) loss or gain based on what the market does that day, but does it really matter, because if you were not rolling over the account would have been subject to the fluctuation anyways.

    The only case I could see this even being worth an afterthought is if you were going to miss out on a day when the market had a historic gain. But I would want to check and be sure as to what time the account balance would be calculated on, whether it be at the end of day one, or the end of day two.

    Or another option is to pray the market stays relatively flat while you complete the rollover so you do not have to worry the rest of your life about what might have been! ;)

  7. Cory Aldrich says:

    Yeah… this is fishy. And odds are the custodian isn’t actually placing the trades until after the “cancel by” date. I can’t imagine the system has a built in way to game it.

    Also, and this may go without says, remember the mutual funds are only valued once a day after the market closes and the underlying assets have been valued.

  8. Ron says:

    I switched companies and rolled over my 401k but I am not able to partticipate for a year. Did I screw u or what is my options now? I have till June before I can par-take in the company I am with now. Can I still take a loan from it while waiting for June?


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