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Remember Dividends Before Rolling Over 401Ks

Posted By Jim On 02/13/2007 @ 10:01 am In Retirement | 9 Comments

If you roll over your 401K into a rollover IRA as I have just recently done, be aware of any dividends that might be coming your way. I held a few shares of stock in a self-directed account associated with my 401K and I believe I rolled over my account after the ex-dividend date but before the actual dividend payout date. Now, if you hold shares of stock on the ex-dividend date then you will get the dividend payout, usually a couple weeks later, deposited into your account. This presents a unique problem for folks rolling funds over because now you have, essentially, orphaned funds sitting in your 401K that is likely under the rollover threshold.

This is exactly what happened to me and I had a little more than a dollar orphaned in my self-directed investment account, far less than the $1,000 threshold. What this means is that in order to get the money, I’ll have to take a lump-sum withdrawal which will be subject to income taxes and a 10% penalty; which is exactly what I did.

Now, this isn’t such a big deal for me because of how little that amount is, but if you’re talking about a 401K that you’ve had for thirty years, this dollar amount could be pretty sizable if you have some of it individual stocks. How can you avoid this? Since you can rollover at anytime after you leave your job, simply double check that you aren’t between the ex-dividend and the dividend date.

Now I have to figure out what I can spend my 99 cents on!


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