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Typically I've seen that I have gotten Dividend re-investments in December for my current 401k elections for the past several years. My company is switching providers, do I loose what would have been given if it had stayed put?

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  • Ask your employer and/or the investment companies for details, but you shouldn't lose anything.
    – keshlam
    Dec 10, 2015 at 2:53

4 Answers 4

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Dividends from mutual funds reduce the share value the day they are distributed. Mutual funds do this at least once a year, or more times in the year if there are a lot of gains, to pass through taxable gains to individuals who may have lower tax rates or deferred tax accounts such as you. This is meaningful for investors who hold the mutual funds in taxable accounts, but immaterial for 401ks. Your account balance is not affected if you don't get the distribution before roll over.

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Your biggest concern will be what happens during the transition period. In the past when my employer made a switch there has been a lockout period where you couldn't move money between funds. Then over a weekend the money moved from investment company A to investment Company B. All the moves were mapped so that you knew which funds your money would be invested in, then staring Monday morning you could switch them if you didn't like the mapping.

No money is lost because the transfer is actually done in $'s. Imagine both investment companies had the same S&P 500 fund, and that the transfer takes a week. If when the first accounts are closed the S&P500 fund has a share value of $100 your 10 hares account has a value of $1000. If the dividend/capital gains are distributed during that week; the price per share when the money arrives in the second investment company will now be $99. So that instead of 10 shares @ $100 you now will buy 10.101 shares @ $99. No money was lost.

You want that lookout period to be small, and you want the number of days you are not invested in the market to be zero. The lockout limits your ability to make investment changes, if for instance the central bank raises rates. The number of days out of the market is important if during that period of time there is a big price increase, you wouldn't want to miss it. Of course the market could also go lower during that time.

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Depends on if the investment options are changing. If the investments don't change then you will still receive your dividend. If they are changing, your company is legally obligated to inform you what new investment your money will be transferred to.

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Dividends are paid based on who owns the security on a designated day. If a particular security pays once per year, you hold 364 days and sell on the day before the "critical" day, you get no dividend. This is not special to 401(k) or to DRIP. It's just how the system works.

The "critical" day is the day before the posted ex-dividend date for the security. If you own at the end of that day, you get the dividend. If you sell on that day or before, you do not.

Your company changing providers is not in itself relevant. The important factor is whether you can still hold your same investments in the new plan. If not, you will not get the dividend on anything that you currently hold but "sell" due to the change in providers. If you can, then you potentially get the dividend so long as there's no glitch in the transition.

Incidentally, it works the other way too. You might end up getting a dividend through the new plan for something that you did not hold the full year.

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