As director of long-term-disability claims for a major insurance company, Janet Carroll spent 25 years reading the fine print and spotting traps hidden in contract legalese.
Yet despite all her experience, Carroll lost $1,500 over a long holiday weekend when she switched retirement funds from her company's 401 plan to a self-directed IRA."I forgot to read the fine print," she laments.
Carroll's misfortune serves as a warning to the 25 million Americans who are building up retirement nest eggs in 401 . You run the greatest risk of being sandbagged by bureaucratic snafus and costly mistakes when you pull money out of a plan.
"One of the big advantages of a 401 is its portability," says Marysue Wechsler, a financial educator with Watson Wyatt Worldwide in Washington, D.C.
In other words, you get to take your money with you when you leave the company. But, as Carroll's experience shows, that's no guarantee of smooth sailing.
When Carroll retired in May 1995, she decided to let her retirement funds continue to grow inside her company's 401 plan. After all, the money was invested in two mutual funds that were having an excellent year.
But by year's end, Carroll, now 61, wanted more control and flexibility and decided to roll over her money into a self-directed IRA.
The timing of the switch is what tripped her up. Her 401 account was closed on the last business day of 1995. Unfortunately, that was after the funds had declared their dividend and capital-gains payouts for the year - the so-called ex-dividend date - but before the money was actually paid out on the first business day of 1996.
Normally, that's no problem because the dividends are paid to the owner of record on the ex-dividend date. But Carroll, who lives in Florida during the winter and in Maine during the summer, never got her money.
It took six months to find out why: The 401 plan, not Carroll, was the owner of record of the shares. That little technicality cost her $1,500 - money she would have received if she had closed the account a few days later. The dividends and capital-gains payout that should have gone into her account was spread among remaining plan members' accounts.
While the trap Carroll slipped into was unique, it can serve as a reminder to the rest of us to read the fine print.