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Clever 401(k) Rollover “Strategy”

Posted By Jim On 09/10/2006 @ 10:58 am In Investing,Retirement | 8 Comments

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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