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Chapter 3. How Safe Is Your 401(k) Money? > Company Mergers - Pg. 35

How Safe Is Your 401(k) Money? 35 Taxes As you might imagine, there is one exception to the "no one can get at your 401(k) money" rule. Uncle Sam can get at your 401(k) money through his nephew the IRS. Nobody escapes IRS taxes -- income, Social Security, Medicare, and penalties. So make sure you pay your fair share each April. State taxes? Nope. Neither the governor of your fair state nor the mayor of your lovely city can get at your retirement money. Company Mergers Because nothing is constant in the business world but change, it's a good idea to become familiar with what happens to 401(k) plans in the event of certain changes. If your company is acquired by another, one of three things will happen to your 401(k) plan: · Plan termination--Your new employer says, "We are not interested in keeping your old 401(k) plan," and terminates it. Your decisions are fairly easy: You generally can a) Roll your money into the new employer's 401(k) plan; b) Roll your money into an IRA; or c) Cash out of the 401(k). With the first two options you'll pay no taxes. (Just be sure to roll over the funds within the legal time period.) If you choose to cash out, set some money aside for taxes. Of course, if you have a loan outstanding when this happens, you had better pay it back or it will be deemed a distri- bution. (See Chapters 9, "IRAs Versus 401[k]s--Which Is Better?" and 20, "And Now It's Time to Retire," for more on this whole topic.) · Plan transfer--This occurs when your new employer buys your old employer, lock, stock, and benefits, including employees. In this case, all your 401(k) money, including loans, will eventually be transferred over to the new plan. Expect that it will generally take three to six months before all is back to normal.