401K stock question

[LEW]

Need help. We by chance discovered in July that we had unclaimed property being held by our State, and had not clue as to what it would be. No problem, filled out the form and discoved it was stock and dividends that should have been in our 401K plan. My husband has worked at the same company for 26 years with the same plan administrator and all dividends and stock are supposed to be automatically rolled back into the plan. How did this happen? We have not made any changes or touched the 401K. The state told me that stock and dividends should never come out of a 401K, but that they received these all the time as none active accounts. We are trying to figure out what to do. The stock and dividends are out of the plan. I'm guessing we will owe taxes and penalties, but shouldn't the administrator be liable for some of this, since we did not direct this action? Really need some help for this stock dummy. Thanks.

[MADem]

1. Get a lawyer. Try to find a good one, ask round for recommendations.

Best of luck.

What you say makes sense, but the law isn't always logical (unless you push 'em).

Wish I could be of more help, but I think legal advice from a lawyer who specializes in taxes and financial matters is the way to go.

[LEW]

8. Thank you, good advice

I never thought about contacting the IRS. That is a good place to start and especially if it can reclassified.

[MADem]

9. Give the credit to HERETIC, downthread--that is good advice that he offered. NT

[dems_rightnow]

2. I just don't think that's possible

Could it have come from an even older plan somewhere?

Because a 401k plan has nothing in your name, it's in the name of the Plan. It's a giant pool of money. There's no way for the company paying the dividends to know that a piece comes to you. Because you don't own any shares of them.

[A HERETIC I AM]

3. That's not true.

Because a 401k plan has nothing in your name, it's in the name of the Plan. It's a giant pool of money. There's no way for the company paying the dividends to know that a piece comes to you. Because you don't own any shares of them.

Not at all true.

Each account in a 401(k) is an individual account in the account holders name. It isn't "a giant pool of money" to the extent you suggest. Each individual share of a mutual fund or a share of stock is most certainly recorded as to who owns it and/or the account number, and that account number relates to a particular individual.

Since most 401(k) plans offer shares of Mutual Funds to a far greater degree than shares of individual stock, the mutual fund companies themselves know exactly who holds the shares and when dividends are received or capital gains realized by the mutual fund, they know exactly how much to credit to each holder of shares. They don't just simply pay those proceeds into some giant pool of money and then let the account holders fight it out.

It just doesn't work that way.

[dems_rightnow]

5. Afraid not

Certainly they don't pay a dividend in and let people fight it out. A "Third-Party Administrator" maintains internal records as to who owns how much, and allocates out interest, dividends, and gains accordingly.

You don't own any shares, and no company thinks you do. If you'd like to think differently, that's certainly your prerogative.

[A HERETIC I AM]

6. If you have a 401(k) plan at work in which you participate....

and you have made choices that involve selecting particular mutual funds in which to invest, then yes you DO OWN SHARES of those mutual funds.

They are yours. The dividends and cap gains are credited to YOUR ACCOUNT.

And, by virtue of owning shares in a mutual fund, you also hold shares in all the underlying companies, you just don't get direct voting rights, the mutual fund company does. The individual companies don't know that YOU own the shares, they know the mutual fund company does. The fund company knows who holds their shares.

If you want to think differently (and wrongly, I should add) that's certainly your prerogative.

[A HERETIC I AM]

4. Call the IRS.

Call your local IRS office and ask them.

Since it appears these funds were characterized in a way that was not directed by you or your husband and you had no intention of removing them from a tax deferred account, the IRS may allow re-characterization with no penalty.

In other words, put that Genie back in the bottle.

It is possible that in the early years of your husbands employ, somehow a second (or first, as the case may be) 401(k) account was set up that received these funds or there were contributions made to an account that for some reason was not listed as a tax deferred one.


You may indeed need an attorney, but I would start with the IRS first. It may take some patience, but they will give you the correct answer.

[Ruby the Liberal]

7. If you husband is still working at the company where the 401 originated

start with them. If it is a rollover IRA from a different company, start with the IRS Consumer Advocate's office (You can find your local representatives here: http://www.irs.gov/advocate/content/0,,id=150972,00.html ) I used them a few years ago and was not pleasantly surprised, I was floored - at least the people I was dealing with were like little Elizabeth Warrens running around looking to fix messes. They were awesome.

If all else fails, contact a tax attorney.

Congrats on the recovered property! Always nice for something positive to happen in life, even if a few strings are temporarily attached that need to be dealt with.

Edit to add link

[glinda]

10. This is another interesting situation. Heretic is helpful to be sure....

[MidwestTransplant]

11. DO NOT call the IRS

Speak with a tax attorney or your accountant first.