What is a Frozen 401k?

A frozen 401(k) refers to a retirement plan that no longer allows contributions, new enrollments,
or certain types of transactions. Here’s what it typically means, along with options you may
have…

Key Aspects of a Typical Frozen 401(k):

1. No New Contributions: Employees cannot make additional contributions to the plan. This could be because the company has stopped offering the 401(k) plan or has switched to a different retirement plan.

2. No New Enrollments: New employees may not be able to enroll in the plan, and current employees might not be able to make changes to their participation, such as increasing contribution rates.

3. Continued Investment Growth: The existing funds in the 401(k) remain invested and can continue to grow based on the performance of the investments in the account.

4. Distributions and Rollovers: While the account is frozen in terms of new contributions, you can typically still roll over the funds to another retirement account, such as an IRA, or take distributions according to the plan’s rules.

Reasons a 401(k) might be frozen:

1. Company Closure or Merger: The employer sponsoring the 401(k) might have closed, merged with another company, or decided to offer a different retirement plan.

2. Plan Termination: The employer may have decided to terminate the 401(k) plan altogether.

3. Regulatory or Financial Issues: The plan could be frozen due to legal, financial, or regulatory issues affecting the employer.

Even though contributions are frozen, your money is still yours, and you have options for managing it.

Keep in mind a frozen 401(k) typically means that your account is no longer accepting new contributions, usually because you left the employer that sponsored the plan or the plan itself was terminated or changed. However, your existing funds are still invested and can grow over time.

Here are a few options for managing a frozen 401(k):

1. Talk to a Qualified Investment Advisor Representative: In most cases, this is unquestionably your best option! Making the best decision
for managing your 401(k) funds under these circumstances is a huge matter. A qualified fiduciary can give you professional advice and recommendations with your best interests in mind.

2. Leave It Where It Is: You can leave the funds in the current 401(k) plan, allowing them to continue growing until you retire or decide to withdraw them. This is often the simplest option.

3. Roll It Over into an IRA: Rolling over your 401(k) into an Individual Retirement Account (IRA) gives you more control over your investments and may offer more investment options. There are no taxes or penalties if you do a direct rollover.

4. Roll It Over to a New Employer’s 401(k): If you have a new job that offers a 401(k) plan, you might be able to roll your old 401(k) into the new employer’s plan. This can simplify your finances by consolidating accounts.

5. Withdraw the Funds: You can withdraw the funds, but this option is generally not recommended unless you need the money urgently. Withdrawals before age 59½ typically come with a 10% early withdrawal penalty and are subject to income taxes.

6. Convert It to a Roth IRA: You could convert your 401(k) to a Roth IRA, but you’ll need to pay taxes on the converted amount. The benefit is that future withdrawals from the Roth IRA are tax-free if certain conditions are met.

Successful management of your 401(k) funds is critical to your retirement plan. If you find yourself in a situation where your 401(k) plan is frozen, Iowa Retirement Benefits & Solutions is well equipped to help you make the absolute best decision. To get started with a free and confidential strategy discussion on this subject simply Click Here to Contact Us. You can also email us directly at info@iowaretirementsolutions.com or by phone at 319-423-3332.

Whenever you need us, we’re here for you!

Investment advisory services are offered through Fusion Capital Management, an SEC registered investment advisor. The firm only transacts business in states where it is properly registered or is excluded or exempted from registration requirements. SEC registration is not an endorsement of the firm by the commission and does not mean that the advisor has attained a specific level of skill or ability. All investment strategies have the potential for profit or loss.