A couple weeks ago I received a letter from my former employer’s 401(k) benefits company notifying me that I had $0.83 in my 401(k) account. Despite my best efforts avoid dividends and distributions on funds , I must have missed one in the process. I was told that since my vested account balance was less than $1,000, I’d have to roll it over or take a distribution, which would be taxed and penalized.
I was in a quandary. At such a small dollar amount, it certainly wasn’t worth the time to roll it over. If it appreciated at an average rate of 7% a year for forty years, it’s would be worth a mere $12.43. That’ll be enough to buy me a pack of bubble gum after taxes in 2049.
Why not just take the $0.83 distribution? I did this last time when I had a little less than $5 because the hassle just wasn’t worth it. They withheld 20%, which was less than a $1, and my accountant, upon seeing this, laughed. Since the tax withheld was less than a dollar, it was rounded into oblivion. 20% was withheld and I never even got credit for it… so I was doubled taxed on the rollover.
Out of principle (and, to be honest, stubbornness), I wasn’t going to let it happen again. The tricky part is that at such a small dollar amount, the cost of a stamp would make it a losing proposition. The solution was to have the 401(k) plan mail the rollover check directly to Vanguard. In the past I’ve always had the check mailed to me and then I mailed it to Vanguard along with instructions of how the funds were to be invested. I was forced to do this because one of my employer’s 401(k) plan refused, as a matter of their protocols, to mail the check directly to another plan. Fortunately, this was a different employer and they were willing to mail it direct.
As with any rollover, find out the information that the receiving institution requires before sending the check. In my case, Vanguard needed the check to be made out to VFTC (Vanguard FTC or Vanguard Fiduciary Trust Corporation), FBO [Account Holder’s Name] (this is typically automatically on a rollover check), and a Fund-Account Number pair. Then you mail it to their standard PO Box 1110, Valley Forge PA address.
Should be settled in 7 business days and hopefully this is the last I hear about this account!