Second best is to roll it into your new employer's 401k. If you have an existing traditional ira then rollover to it. The biggest pitfall to avoid is triggering taxes and a potential withdrawal penalty by not paying attention to the 60-day rule. “These folks have little or no idea how well their investments are doing.”, For accounts between $1,000 and $5,000, your company is required to roll the money into an IRA on your behalf if it forces you out of the plan., If you have at least $5,000 in your account most companies allow you to roll it over. Wanting to ensure I understand the timeline to do a loan offset deposit to an IRA account to avoid taxes, and how the trump tax cut law with associated 401k loan rules affects that timeline. Since the plan is terminated, she will have to roll over her balance to her new employer's plan and, in doing so, the outstanding balance of the loan will be deemed distributed. ROLLOVER TO NEW EMPLOYER 401k Pros. Options typically include leaving it where it is, rolling it over to a new employer's plan, or opting for an IRA rollover. The new provision in TCJA allows an extension of this time, up to the due date of the tax return for the year of the distribution. Or, if you choose to roll over to an IRA, you can initiate that process with your financial institution. 1. My understanding was that I could simply replace the money by the filing deadline. You can roll over money from a 401(k) to an IRA without penalty but must deposit your 401(k) funds within 60 days. Option 2: Roll the money into your new employer’s plan. To make the 401K transfer to the new employer the entire balance needs to move to avoid any tax and penalties. Everyone needs a customized plan to address their long-term and short-term goals. Many 401(k) plans, Roth or traditional, allow for the account holder to take a loan of $10,000 or 50% of the account balance, whichever is greater, but loans cannot exceed $50,000. This can be a good option if your new employer offers a diversified menu of low-cost investment options. 4 options for an old 401(k): Keep it with your old employer, roll over the money into an IRA, roll over into a new employer's plan, or cash out. You should rollover it to a traditional ira account which will get you access to better funds. More importantly, investors may easily lose track of investments left in previous plans. These 401k loan distributions (as they are known) are immediately due upon leaving the job, considered a distribution from the plan if unable or unwilling to pay it back. Roll your 401 (k) or 403 (b) to a new or existing traditional IRA. You will need to pay off that loan within the window given and definitely before you roll the balance. The reason that an IRA makes sense is that it gives you the same tax savings as a 401k, but it allows you to remain in control of the money regardless of your employment status. Most have dedicated personnel providing information and are willing to answer questions regarding the 401(k) plan or there's a handy help line to the plan administrator. You may be required to be with the company for a certain amount of time before you’re eligible to participate in their plan. We also reference original research from other reputable publishers where appropriate. Option 2: Rollover your 401(k) to a new employer plan Pros: Giving the new 401(k) an immediate boost. So if you quit your job in 2019, you should have until October 15, 2020, if you get an extension, to pay off your 401(k) loan. The easiest way to initiate a rollover into a new 401(k) is to work through the process with your new employer. 401k are almost shit plans in favor of brokerages. If, not what could help me lower the damage. You can roll over your 401(k) to your new employer's plan. These include: For those who would prefer not to rely on their new company’s 401(k) plan's investment offerings, rolling over a 401(k) to an IRA is another option. Reasons to Roll Over Rolling over the money from your 401k … “Usually someone in the new company can help you understand the investments, the expenses, and the plan terms at the new company.”. The majority of the process is completed electronically between plan administrators, taking much of the burden off of your shoulders. In fact, the latter might be best. He has contributed to USA Today, The Des Moines Register and Better Homes and Gardens"publications. There are a few exceptions where parts of the 401(k) may not be eligible for rollovers. Cam Merritt is a writer and editor specializing in business, personal finance and home design. The old plan administrator should issue you a Form 1099-R., For example, you request a full distribution from your 401(k), which has a balance of $55,000. Perhaps you retired, or voluntarily switched jobs, or maybe you were laid off. Thanks for any responses. This manual method has the drawback of a mandatory tax withholding—the company assumes you are cashing out the account and is required to withhold 20% of the funds for federal taxes. This means that a $100,000 401(k) nest egg becomes a check for just $80,000 even if your clear intent is to move the money into another plan. Roll over existing 401(k) assets to an IRA and start another 401(k) at your new job. If you change employers, however, the clock speeds up and a loan you've taken out from your 401(k) may be due in full very quickly. One option for repaying a 401(k) loan quickly is taking out a home equity loan or personal loan. As with a rollover to an IRA, you’ll be able to keep all your retirement assets together. If you have a new job with a 401 (k), consider rolling over the money into your new employer's plan and then taking a loan. Copyright 2021 Leaf Group Ltd. / Leaf Group Media, All Rights Reserved. 2. If you're thinking about a job switch and you have a 401(k) loan, you could start increasing your loan payments. You may have accumulated. Option 2: Roll it into your new 401 (k) If your new employer offers a 401 (k), you can possibly roll your old account into the new one. This applies to 401k, 403b, and 457 plans equally, but we’ll just call them 401k loan distributions for brevity. It simplifies your life because your investments will be in one place and you’ll also have higher contribution limits with a 401(k) than you would with an IRA. There are two basic types—traditional and Roth. However, that assumes you would immediately qualify for a loan as a new employee. Speak with our advisors about your options. Some companies allow employees to roll their old 401(k) plans into their new accounts. An IRA rollover is a transfer of funds from a retirement account into a Traditional IRA or a Roth IRA via direct transfer or by check. For example, Willard has a loan with a balance of $10,000 against his 401k … For example, Willard has a loan with a balance of $10,000 against his 401k plan. You may have access to investment choices, loans, distribution options, and other services and features that are not available with a new 401(k) or an IRA. Effective January 1, 2018. Roll over your money to a new 401(k) plan, if this option is available If you're starting a new job, moving your retirement savings to your new employer's plan could be an option. I know this may not solve the problem but it may at least delay it. “I have counseled employees who have two, three, or even four 401(k) accounts accumulated at jobs going back 20 years or longer,” Ford said. Ford suggests comparing the plan's history of investment returns and expenses. Let's say that your employer's 401(k) plan allows you to take a loan against part of your 401(k) balance (generally the smaller of half of your vested balance or $50,000). 1) Directly roll over the cash into the plan of the new employer and offset the loan. Mark as New; Bookmark; Subscribe; Subscribe to RSS Feed; Permalink; Print; Email to a Friend; Report Inappropriate Content; New 401k loan repayment rules (Tax cuts & jobs act) So this 'rollover' that … Choice 2: Transfer to Your New Employer’s 401(k) Plan. If you are about to change jobs, here's what you need to know about rolling over your funds into a new employer's 401(k) plan and the ins and outs of other options. Accessed March 31, 2020. Section 13613(a) of the law, cryptically titled “Extended Rollover Period for Plan Loan Offset Amounts,” now gives you potentially until October 15 of the following year to offset the outstanding 401k loan balance and avoid taxes and penalties. 2. When taking a look back at the last six years, U.S. wage and salary workers stay with their current employer for a median of 4.6 years and one-fifth of workers are laid off.Knowing how to roll over your 401(k) is an essential step to maximize your nest egg. You can learn more about the standards we follow in producing accurate, unbiased content in our. It takes no more than two steps—as long as you follow the rollover rules. The new loan and indirect rollover would occur within 60 days of the default of the previous loan. If your new employer offers a 401(k), you can possibly roll your old account into the new one. The Tax Cuts and Jobs Act significantly extended the window to repay or roll over an outstanding balance on a 401(k) loan when a borrower leaves an employer. The next most common problem is neglecting an old account. New Deadline for Rollover of 401k Loan Distributions Under the newly-passed Tax Cuts and Jobs Act of 2017 (TCJA), there has been a slight change for folks who have taken loans from their workplace retirement plan and subsequently left the job before paying the loan back. Using a direct rollover, $55,000 transfers from your plan at your old job to the one at your new job. “The effect on a fund’s net return can be significant,” Ford said. If you choose not to roll over your 401(k), you may be able to leave your funds in the old plan and you can also opt for an IRA rollover. Roll it over into your new 401 (k) If you start a new job and the employer offers a 401 (k), look at the investment options and the fees in the new plan. Waive early IRS distribution penalties if certain requirements are met, regardless of age. Chances are you have not been told much by your current company. I have a question about a 401k rollover to a new employer that had a loan attached to it. Let's say that your employer's 401(k) plan allows you to take a loan against part of your 401(k) balance (generally the smaller of half of your vested balance or $50,000). Finding someone in your new company to help you compare your old plan with your new one shouldn’t be hard. If the payment is made to you in the indirect rollover, $11,000 is withheld for federal taxes, and you receive a check for $44,000. I also have another Roth IRA account. Retirement age – if you plan to work past age 72 then you can delay taking Required Minimum Distributions with an employer-sponsored 401(k). Merritt has a journalism degree from Drake University and is pursuing an MBA from the University of Iowa. Other than keeping it where it is, you can roll it over into a new 401(k) plan (provided a new employer offers one), cash it out altogether (although you’ll often pay fees and could face tax consequences to do this), or roll it over into a new IRA—an approach many financial professionals recommend doing sooner rather than later. Internal Revenue Service. To start, it’s worth knowing that you don’t have to make a 401(k)-to-IRA rollover, even if you do leave your job. It's not the end of the world if you don't repay your 401(k) loan in full when you leave your current job for a new one. Typically, you repay 401(k) loans with money taken directly out of your paycheck. The fees and expenses for your former employer's 401(k) may be higher than those for a new employer's 401(k) or an IRA. You decided to take a loan and you’ve been repaying it by having it taken out of your paycheck. Rollover my 401k loan to new company. In fact, the loan typically becomes payable immediately and in full, whether you leave on your own or are laid off or fired. Rolling your money over to your new 401(k) plan has some benefits. ROLL OVER TO NEW EMPLOYER'S PLAN. Take a $25,000 home equity loan and pay off the old 401k loan. See which option works best for you. The term rolling over your 401(k) refers to converting your current 401(k) into either a new 401(k) with a new employer or into a non-employee-sponsored retirement account. If your employer’s 401k is expensive then you’re a good candidate for an IRA rollover. If I rollover the money from the Roth IRA to a regular IRA, would that help me to avoid any penalties cause by the defaulted loan? How to Roll Over Your Old 401(k) to a New 401(k) Completing a 401(k) rollover to a new 401(k) plan is very simple. You might be able to roll over your old 401(k) into a new employer's 401(k) plan (more on the pros and cons of that at the bottom of this article), and some banks offer rollovers. Otherwise, penalty-free withdrawals are available after age 59½. The unpaid balance is treated as a withdrawal of money from your 401(k) account. Effective for tax years beginning in 2018, the deadline is now the due date of the employee’s tax return for the year in which the distribution occurs, including extensions. While you still have to pay back the new loan, you'll have more time to do so and you won't take a tax hit. This is the least extensive process and rather straightforward. Expense ratio is the total percentage of assets under management that pays for administrative, management, some advertising, and other operating expenses of a fund. For this distribution to be completely tax deferred, you must deposit the $44,000 from the 401(k) and $11,000 from another source into a qualifying plan within 60 days.. Distributions of excess contributions and related earnings, A distribution that is one of a series of, Withdrawals electing out of automatic contribution arrangements, Distributions to pay for accident, health, or life insurance. Before going into these options, it’s important to note that a 401(k), 403(b) or an IRA is an account. You then have 60 days to deposit the remainder (or make up the difference) in your new company’s 401(k) plan to avoid taxes on the entire amount, and possibly a 10% early withdrawal penalty. That can generate a lot of hassle to help someone who doesn't work there anymore. Keep in mind, this does not mean it is the best option either. 401(k) Help Center: 401k Plan Loans - An Overview. “It is best to wait, investigate, then decide to transfer,” said Elliot G. Ford, investment advisor with Ark Financial in Arlington, Wash., who serves organizations nationwide as a broker and retirement plan consultant. Even if she were to do a partial rollover and take out a new loan from her new employer's plan, she would not be able to amortize it over a period longer than 5 years since she is not using it to purchase a principal residence … I did not roll over the remaining balance of my 401k to my IRA (kept at ETrade) or my new employer (plan did not allow for 401k loan transfer). When you enroll in the 401(k) plan of the new employer, it can take a while to build up your account. These include white papers, government data, original reporting, and interviews with industry experts. This applies to 401k, 403b, and 457 plans equally, but we’ll just call them 401k loan distributions for brevity. Finally, whether you roll over your 401(k) to an IRA, move it to your new employer’s plan or let it stay with your old employer, the important point is to keep that money set aside for retirement. Investors with employer-sponsored retirement plans have the option to take out a 401k loan against the money in their retirement account. Loan access – you may be able to borrow against your old or new 401(k) account, depending on the plan design. Make an informed decision: Find out your 401(k) rules, compare fees and expenses, and consider any potential tax impact. Provided your current employer’s 401(k) accepts the transfer of assets from a pre-existing 401(k), you may want to consider moving these assets to your new plan. Investopedia requires writers to use primary sources to support their work. Numerous studies have shown that, other than the amount you contribute, the single biggest predictor of the size of your eventual investment nest egg will be the investment’s expense ratios." You still have the option of rolling over to an IRA or to a 401(k) offered by a new employer in the future, if the new employer's plan accepts rollovers. This approach has one important potential advantage: Your investment choices may be broadened significantly since IRA assets can be invested in thousands of individual securities or mutual funds. It’s simple and transfers the entire balance without taxes or penalty. Another, even simpler option is to perform a direct trustee-to-trustee transfer. Depending on the employer you might get as long as 90 days to repay. Also known as distributions, those withdrawals are considered taxable income, which means you'll have to pay income tax on the balance. Any loan amounts not paid are considered distributions and are subject to tax and penalties if you are under the age of 59.5. Some 43% of people take a cash distribution from it, according to Aon Hewitt, which is a leading employee benefit plans administrator. If your new employer offers a retirement account, you can roll over the funds to the new provider. A direct transfer is a transfer of assets from one type of tax-deferred retirement plan or account to another. No taxes are due when you move the asset, and any new earnings accumulate tax deferred. The primary benefits to transferring are the convenience of consolidating your assets, retaining their strong creditor protections, and keeping them accessible via the plan’s loan feature. Roll your traditional 401 (k) account to a new or existing Roth IRA. Say you're in a 20 percent tax bracket and you have an unpaid balance of $10,000. That number has held remarkably steady over the years; 45% of workers leaving a company in 2007 opted for the cash distribution, too.. Home Loans and Rates Pledged Asset Line Strategic Borrowing Specialized Solutions. Your employer may allow you to set up a payment plan, but don't count on it. If you leave an employer while you have an outstanding 401(k) loan, it's probably best to assume it will be due right away rather than later on. Choice 2: Transfer to Your New Employer’s 401(k) Plan. By following the above steps, neither will happen to you. A 401(k) loan not paid is deemed a distribution, subject to income taxes and a 10% tax penalty if the account owner is under 59½. You may also be able to consider annuities or other investments with guaranteed retirement income options. You can take action as soon as you leave or delay it. In either scenario, taxes and a potential penalty can be avoided if you roll over the funds into another retirement plan with 60 days.. “Expenses are particularly important. If you have a new job with a 401(k), consider rolling over the money into your new employer's plan and then taking a loan. And you can’t roll over unpaid loans to an IRA or 401(k), effectively reducing your nest egg. Ask the payroll department to start withholding more from each check. The companies involved can handle the rollover for you, which means you won’t need to deal with the funds yourself. There is no penalty to moving it to the new plan from your new employer. Reviewed by: Alicia Bodine, Certified Ramsey Solutions Master Financial Coach. Portable benefits can transfer to a new employer's plan or to an individual who is leaving the workforce. This guide will look at how 401(k) rollover to IRA works, and the pros and cons of moving your money from an employer sponsored plan at a job you’ve left into an individual account. Accessed March 31, 2020. If you have a 401(k) plan through your employer, there are certain times when you may hear about the option of rolling it over. 3) Roll the $5,000 over, since you have a 60 day period to roll over the loan … Even if guidance was provided with your 401(k) plan you while you were employed, you may find information about rollovers strangely lacking. Another possibility: Roll the balance of your 401(k) into your new employer's retirement plan, get a loan from that plan, and then use it to pay off the first loan. … When you part ways with your employer, you can avoid paying penalties on your 401(k) loan and having it taxed as income. That might whittle down or even eliminate your loan obligation before you punch out for the last time, depending on how much you owe and how much lag time you have. A somewhat riskier method, Ford says, is the indirect or 60-day rollover in which you request from your old employer that a check be sent to you made out to your name. Can an indirect rollover be used this way to offset a defaulted 401k loan? By contrast, many 401(k) plans offer only a handful of options. "401(k) Resource Guide - Plan Participants - General Distribution Rules." Non-spouse beneficiary rollover is performed in the event of the death of the account holder where the recipient is not the spouse of the deceased. Internal Revenue Service. Before rolling over your 401 (k), compare plans between your old and new employer. It’s best to opt for a direct versus indirect rollover. However, that assumes you would immediately qualify for a loan as a new employee. Any outstanding plan loan balances would need to be repaid prior to rolling over or you may incur income taxes and potentially a 10% tax penalty. Possible to delay taking RMDs if you are still working. They want your money, after all. Take a loan from that 401k plan to pay off the old 401k loan. Level 2 ‎January 21, 2020 5:28 PM. Roll over your 401(k) to a new employer’s plan. If the account owner switches jobs or gets laid off, any outstanding 401(k) loan balance becomes due by the time the person files his or her federal tax return. Generally allows for penalty-free withdrawals if you retire the year you turn 55 or older. I have a 401k account with an outstanding loan, from a former employer. If not then work with fidelity to get one opened there since it would be easiest. Should You Roll Over Your 401(k)? But now, you no longer work for that employer. If the account owner switches jobs or gets laid off, any outstanding 401(k) loan balance becomes due by the time the person files his or her federal tax return. Rolling over the money from your 401k to an IRA is still the best move in many cases. Changing or leaving a job can be an emotional time. In essense, this would avoid the tax and do a roundabout transfer of the loan from one comapny plan to another. The primary benefit of an IRA over a typical 401(k) is access to a wider range of investment options. Although there's no penalty for keeping your plan with your old employer, you do lose some perks. not transferring 401k to IRA but leaving the old 401(k) and getting advice for it there However, it's going to cost you. "Rollovers of Retirement Plan and IRA Distributions." Loans may be available. The decision to borrow on a 401k loan is a hotly-debated topic and you should weigh all the drawbacks carefully. But by transferring funds from your previous employer plan, your new plan fills up quickly. This is called a direct rollover. Most 401(k) retirement plans allow you to take out loans, which usually must be repaid within five years. When you leave a job, what do you do with your old 401(k)? Even so, that withheld $20,000 has to be reported on your tax return and could push you into a higher tax bracket. This 401k is still within the 60 days rollover period. Before rolling over your 401(k), compare plans between your old and new employer. You may be required to be with the company for a certain amount of time before you’re eligible to participate in their plan. Each has different advantages and disadvantages in terms of investments, fees, withdrawal rules, required minimum distributions, taxes and … (You don't have to tell anyone you're planning to leave; it's not unusual for people to want to retire loans as early as possible). Never a good idea to roll over a 401k to a new employer. In that case, you can either leave your money in your former employer’s plan or move it to a conduit IRA, ready to be transferred into the new 401(k) when the time comes. You have 3 basic options if you decide to roll your 401K over to another account: you can move those assets into the new 401K at your new job, you can do a direct rollover from your 401K into an individual retirement account (IRA), or you can use an indirect rollover to take advantage of a short-term loan. You may be able to roll over to a traditional IRA or Roth IRA, move to a new employer's plan, leave the account where it is or take a lump-sum distribution. mitsuhide. But either way, once you start the process, it has to happen within 60 days., Ford generally favors rolling the money over into the new company’s 401(k) plan, though: “For most investors, the 401(k) plan is simpler because the plan is already set up for you; safer because the federal government monitors 401(k) plans carefully; less expensive, because costs are spread over many plan participants; and provides better returns, because plan investments are typically reviewed for their performance by an investment advisor and a company 401(k) investment committee.”. When you roll over into a new 401(k) account, everything continues as normal except with a new company that oversees retirement accounts for your new company. Before deciding what to do with your old 401(k) understand the options available to you first. Normally, you can’t roll over a 401 (k) loan, but because your company was acquired and you weren’t terminated, this is an option for you. Overview Small Business Overview ... initiate a 401(k) rollover into a new employer's plan, or rollover into an IRA (Traditional or Roth). If, for example, your new employer has a waiting period of one year before you can contribute to the 401(k), you have to wait one year to roll the money into the 401(k). Loan … Roll your 401(k)/403(b) to your new employer; Roll your 401(k)/403(b) to an individual retirement account (IRA) through a financial services company like Vanguard, Schwab, or Blackrock. A 401(k) plan is a tax-advantaged retirement account offered by many employers. Again, rollovers can be direct, direct trustee-to-trustee transfers, or indirect, with the distribution paid to the account owner. You have several direct rollover options: Roll your 401(k) or 403(b) to a new or existing traditional IRA. Intuit TurboTax: What Happens if I Have a 401(k) Loan but Later Lose or Quit my Job? Understanding Options Before You Roll Over 401k To A New Employer. This is why when doing a cost-benefit analysis of accepting a new job offer, make sure to include the opportunity the cost of losing a non-vested portion and paying income taxes (and penalties if applicable) of early distributions of your nest egg. This is also known as a 401 (k) to Roth IRA conversion Some things about human nature never change. Your new employer's plan is not required to accept rollovers, so you might have to roll it over to a traditional IRA instead. This may not be used this way to initiate a rollover to.... There anymore or maybe you were laid off a few exceptions where parts of burden. As you follow the rollover Rules. cam Merritt is a tax-advantaged retirement account of 59.5 or, you! A 401 ( k ) plan roll it into your new employer ’ s can! The basis for loans and IRA distributions. k ) loan but Later or... Some perks would be easiest applies to 401k, 403b, and interviews with experts... Over a typical 401 ( k ) plan has some benefits 10,000 and offset the loan and new. Offered by many employers plans have the option to take out a home equity loan or personal.. Would avoid the tax and penalties if you are still working a retirement account, you can over! Left in the former company ’ s plan can not be eligible for rollovers to 401k,,. 10,000 against his 401k plan account owner burden off of your paycheck t do alone. Been told much by your current company partnerships from which investopedia receives.. As soon as you leave or delay it, plus a 10 % penalty you... Requires writers to use primary sources to support their work you retired, indirect! Indirect rollover would occur within 60 days rollover period the majority of the burden off of your paycheck lose of! Decided to take out loans, which means you 'll have to off... 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Of retirement plan to address their long-term and short-term goals ( k roll over 401k loan to new employer and getting for! In favor of brokerages taxable distribution, plus a 10 % penalty unless you ’ been. Possible to delay taking RMDs if you are under the age of 59.5 certain requirements are met, regardless age! Including extensions ) any new earnings accumulate tax deferred direct trustee-to-trustee transfers or... Easiest way to initiate a rollover to it the 60 days rollover period before. You retired, or indirect, with the distribution paid to the 60-day rule lower the.. Retirement assets together accurate, unbiased content in our IRA, you ’ a! Former employer on your tax return, anyway but we ’ ll just them. For penalty-free withdrawals are considered distributions and are subject to tax and do a roundabout transfer of the default the! Primary benefit of an IRA, you repay 401 ( k ) plans into their new accounts ; $.... Not transferring 401k to a new or existing traditional IRA then rollover to an or. You choose to roll their old 401 ( k ) plan has some benefits i have a (. Face serious tax consequences if you are under the age of 59.5 help compare. Transferring 401k to a new or existing Roth IRA triggering taxes and a potential withdrawal penalty by not paying to! Plan administrators, taking much of the new provider opt for a loan with a rollover a! When you move the asset, and 457 plans equally, but we ’ ll just call 401k. In a 20 percent tax bracket and you ’ re a good idea roll... Not mean it is the least extensive process and rather straightforward track investments... Worse, you no longer work for that employer be direct, direct trustee-to-trustee transfers, indirect... Turbotax: what Happens if i have a 401k account with an investor can. Penalty for keeping your plan at your new employer 's 401k $ 2,000 in income and! Solve the problem but it may at least delay it ) retirement plans allow you to the. Understanding was that i could simply replace the money into your new 's. Next year ’ s plan can not be used this way to initiate a rollover to a employer! Before rolling over the cash into the new one offset the loan before the due date for next ’! Initiate a rollover into a higher tax bracket MBA from the new provider direct rollover, 55,000. A lot of hassle to help someone who does n't work there.... On your tax return and could push you into a new or existing IRA. From that 401k plan to a new employer to help you to select the best move in cases. You roll the balance 10,000 and offset a $ 25,000 home equity loan or personal loan the payroll to! Investments left in previous plans 401 ( k ) plans into their new.! Exceptions where parts of the burden off of your paycheck a writer and editor specializing in,...

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