Question I have 401k and stocks in financial company that is being purchased by another. I have received notification that completion of deal is going to happen soon and they provided rate per share for stock on closing date. Does this mean the stock will be dropped? What will happen to my stock portion of this 401k that is with the company? Will it lock at this rate as well? Should I roll it over into something else?
Answer Tammy, it's hard to tell without knowing the specifics but in general, when Company A acquires Company B the original shareholders of Company B get cash, stock in Company A or some new entity, or a mix of the two. It depends entirely on the deal. You mention that "they provided a rate per share" suggesting this is an all-cash buyout.
If so, and the deal goes through as planned, then anyone holding shares of Company B will be bought out, whether they hold shares in a brokerage account, IRA, 401k plan, etc. And in that case yes you would see the shares of Company B disappear and be replaced by cash. You could then reinvest that cash in the other investment alternatives of your 401k plan.
(You may be able to do that before the deal closes, though typically the share price when you sell would be a bit lower than the price set in the buyout deal...e.g. if you'll get $20/share in a couple months it might be at $19.50 or something like that now. That's if the shares are traded on an exchange...if this is a smaller/private company then you may have no way of selling beforehand.)
There are a few more-complicated scenarios involving company stock in a 401k, such as if this is a 401k from a former employer. I'd really suggest talking to your benefits/HR department so you understand exactly what will happen and what your alternatives are. As I said it depends on the specifics of the deal so there's no standard answer.
