What is a hardship withdrawal?
Your plan may allow you to make a withdrawal in the event of financial difficulty and is subject to restrictions.
What are the restrictions for a hardship withdrawal?
Generally, a hardship withdrawal may be made to prevent eviction or foreclosure on your primary residence, purchase your primary residence, catastrophic damage to your primary residence, pay for post-secondary education, funeral expenses, and for medical expenses not paid by insurance. You will be required to submit proof such as bills or a foreclosure notice and you could even have to consent to a credit check.
How much will I be allowed to withdraw on due to a hardship?
Generally, you are allowed to withdraw the total amount you have contributed to the plan from your pay, but not earnings on that money. You may also be allowed to withdraw employer contributions that are 100% vested. Some plans have restrictions on whether you may withdraw employer contributions for a hardship.
What are the consequences of taking a hardship withdrawal?
You will not be allowed to make contributions to the plan for six months, and if you are not 59½ you will have to pay a 10% penalty on the amount you withdraw to the IRS. You will receive a Form 1099 at the end of the year to file with your tax return.
What are the requirements for taking a loan from my account?
Most plans allow loans and do not have any requirements to meet. Your plan’s Summary Plan Description, or your human resources department, will tell you if loans are not allowed or if there are any requirements to meet.
How much can I borrow?
You can borrow up to 50% of your vested account balance not to exceed $50,000. The minimum loan is usually $1,000 which means you will have to have $2,000 vested before you may take a loan.
If I roll my other plans or IRA into my current plan can I borrow against it?
How many years can I take to pay the loan back?
You may pay the loan back for up to 5 years or, if the loan is for the purchase of the primary residence, you may pay the loan back over 30 years. Proof is required when requesting a loan for more than 5 years for purchasing your primary residence.
What is the interest rate and who gets the interest?
The interest rate is generally the Prime Rate plus one percent. As of October 1, 2011 the loan interest rate is 4.25%. The interest on your loan is deposited into your account.
Can my loan be paid with my current payroll contributions?
No. Your payroll contributions are pre-tax dollars and loan payments are after-tax dollars.
What happens to my loan if I quit or get fired?
Generally, you can either pay the outstanding balance in full or you will receive an IRS Form 1099 at the end of the year for the outstanding balance which is subject to regular federal and state taxes, and a 10% penalty if you are not 59½.
Qualified Retirement Plans
Where can I get more information about my company’s retirement plan?
When you become eligible to join your organization’s retirement plan, your employer should provide you with a Summary Plan Description (SPD). If you do not have a copy of your plan’s SPD, you can obtain one from your Human Resources department. The Summary Plan Description is an abbreviated listing of plan provisions, including eligibility requirements, vesting rules for employer contributions and distribution rules.
What is a 401(k)?
In general, a 401k is a type of profit sharing retirement plan. It allows you to contribute pre-tax dollars, or post-tax Roth dollars, and then invest those dollars in the fund options provided for the purpose of saving for retirement. The earnings on your investments are tax-deferred until retirement. Your employer may also make contributions to your account.
Contributions are deducted from each payroll in the amount determined by the employee.
Each employee can defer up to the lesser of $17,000 or 100% of compensation in 2012 (this is adjusted annually for inflation). The plan may set a lower percentage limit when there are matching or other types of contributions. Other limits may apply.
Withdrawals before age 59½ may be subject to 10% penalty.
The plan can permit loans and hardship withdrawals, but is not required to do so.
Participants can start contributing on the dates set by the plan document. You may stop your payroll contributions at any time.
The company sets the eligibility requirements, within certain guidelines. The employer can restrict individuals with less than 1 year service, union members, non-US citizens, and others from being eligible for the plan.
Employers can establish a vesting schedule, within certain guidelines, for the contribution the company makes to the plan.
Employees are immediately 100% vested in their own payroll contributions and any rollovers you bring into the plan.
More information on vesting is covered in other questions.
Why should I put money into the retirement plan?
By saving in the plan, you take advantage of two tax benefits. One is that your contributions are conveniently deducted from your pay before taxes. The second is that since your reportable income is reduced, you pay less in current income taxes. Other advantages are that it is a convenient savings plan, your money grows tax-deferred, and you don’t have immediate access to the money to spend it like a bank savings account.
If your plan allows for Roth contributions you may elect to make contributions on an after-tax basis from your payroll. You don’t get a current income tax reduction from a lower reported income amount, but the benefit is that when you retire if you are in a higher tax bracket, or the tax rate in general is higher, you do not have to pay taxes on the Roth deferrals and their earnings. You should consult your tax advisor for more information on whether you pre-tax or post-tax contributions.
What is the Tax Credit for contributions?
The Tax Credit for low income savers is a temporary nonrefundable tax credit for lower income taxpayers who make salary deferrals to 401(k), 403(b), 457, SIMPLE or SEP plan, or regular or Roth IRA.
How much may I contribute?
The IRS sets contribution limits every year, for the most recent limits, visit Participant Resources
What are Catch-Up Contributions?
People age 50 or older may make an additional contribution above any IRS or Plan limit. The Catch-up Contribution amounts are updated every year, for the most recent limits, visit Participant Resources.
Where can I get more information about the funds offered in my plan?
You can click on the fund name in the Fund Summary screen when you access your account. Your human resources department will be able to provide MorningStar reports for each fund.
How can I access my account?
Simply click the LOGIN button in the header.
You can access your account on the telephone at 1-888-565-4772. This will give you access to our automated system where you can also opt out to an operator from 9am to 4:30pm Monday through Friday Eastern Standard Time.
How do I increase/decrease the amount of money I contribute to the plan?
Plans generally allow changes to your contribution amount monthly or quarterly. You can submit the RPA Participant Change Form to your Human Resources Department with the top portion completed. You may stop contributing at any time.
Is my money guaranteed or insured?
No. You are investing your money in mutual funds and other investment vehicles, which are not insured and do not guarantee that you will earn money. You also have the potential to lose part or all of the money you invest. You should read the fund information provided to you carefully before investing or consult a financial advisor.
What is vesting?
Your employer may make contributions to the plan for you which are subject to a vesting schedule. These contributions are designed to reward you for your service with the company and encourage you to remain with the company. As a means of encouraging you to stay with the company, the vesting schedule entitles you to only a portion of the employer contributions for each year in which you work 1,000 hours. For instance, a vesting schedule may entitle you to 20% of the employer contributions for each year you work. After 5 years of employment you would be entitled to 100% of the employer contributions, however, if you quit after 2 years you would only get 40% of the employer contributions.
Who should I choose as my beneficiary?
This is generally a question for which you should consult a financial advisor. Here are some helpful hints:
If you are married your spouse is the automatic beneficiary unless he or she signs a waiver. Even if you want your spouse to be the beneficiary, you should still complete a beneficiary form as this makes it easier to complete payment. If you divorce and no longer want your ex-spouse to receive your death benefits, you must complete a new beneficiary designation form.
If you are single, your account will go to whomever you designate. If you did not designate someone, your account will go to your estate and will be paid according to state laws. If you marry after designating a child, friend, or a relative, you must get your new spouse’s consent to keep the original beneficiary designation in force.
If you have a domestic partner, naming this partner may help in establishing your relationship from a legal point of view. This action could be used as evidence when registering as domestic partners or when applying for domestic partner benefits in cities, counties or companies where this is available.
If you want to name your minor children as beneficiaries, you may want to consider having a trustee and naming the children’s trust as beneficiary. Most plans will not disburse money to a minor, and it will ensure the money is managed properly. You should consult a financial advisor to ensure the trust meets IRS guidelines.
Can I roll money from my previous retirement plan or IRA into my current plan?
Yes, although there are a few plans that do not allow rollovers. You may roll money between the following plans: 401(k) Plan, 401(a) Plan, Profit Sharing Plan, Money Purchase Plan, Defined Benefit Plan, 403(b) Plan, 457 Plan, and Traditional IRA (not a Roth IRA).
How do I roll my money from my previous plan into my current employers plan?
Although 95% of companies allow rollovers into their plan, you should check with your human resources department first. Next, you will need to complete withdrawal paperwork that your previous employer, or IRA, will give you. This paperwork will ask you for your information about your new plan, how the check should be made payable, and where to send it which is available from your human resources department. You may also need to provide proof that your previous plan is an IRS Qualified Plan or that your IRA is a Traditional IRA.
What kind of proof will I need to provide to prove my former plan is qualified?
A copy of the plan’s IRS Favorable Determination Letter, or a letter from a trustee of the plan, or the Rollover Authorization Form available from your company.
Distributions/Termination of Employment
What are my options when I am no longer employed with my employer?
How do I set up an IRA?
Call or Email us at 888-565-4772 or email@example.com
Do I need to have my spouse complete the Spousal Consent Form?
If your plan is subject to the Joint & Survivor Annuity rules (J & S), and your balance is over $5,000, then your spouse must consent to the distribution even if you are rolling it over to another plan or IRA. Money Purchase plans are subject to J & S, but few 401(k) plans have this rule.
What taxes or penalties are there when I make a distribution?
If you roll your money into another plan or to an IRA there are no taxes or penalties. If you take a cash distribution 20% will be withheld for federal taxes and 4% for state taxes for residents of Virginia. If you are under age 59½, and you take a cash distribution, there is a 10% penalty paid to the IRS when you file your tax return. The federal and state taxes that are withheld are the IRS and State of Virginia required withholdings and may not represent the amount you may actually owe when you complete your tax return.
Can I withdraw my money if I become disabled?
In most plans if you become permanently disabled, you will be able to withdraw money from your retirement account. Certain criteria must be met in order to obtain a disability distribution.
What happens to my account if I get a divorce?
In some divorce cases, the court will award some or all of a retirement account’s assets to the participant’s ex-spouse. If this is done, the court order must meet the conditions of a Qualified Domestic Relations Order (QDRO) as stipulated by the IRS and the U.S. Department of Labor. If the court order does not meet all of the requirements for a QDRO, the plan is prohibited from paying plan benefits to anyone other than the plan participant.
What happens to my account if I die?
Your retirement benefits will go to the beneficiary or beneficiaries you named on the beneficiary form you completed when you signed up for the program. If you didn’t list any beneficiaries, the assets will be counted as general assets of your estate. If you have a will or living trust describing how your estate should be distributed, the retirement plan benefits would then be distributed along with your other estate assets according to those documents. If you don’t have a will, your assets are distributed according to the laws of the state in which you live.
Can my spouse or beneficiary roll my retirement account into an IRA if I die?
Yes. Your spouse may roll your money into an IRA. Your named beneficiary, if other than your spouse, may roll your money into an Inherited IRA.
How will I know how to complete my tax return?
You will receive a Form 1099 by January 31 of the year following the year in which you receive your distribution. If you made a rollover to another plan or IRA you will still receive a Form 1099 but it will be marked that you made a rollover and no taxes are due.
Do my creditors have access to my account?
Under the Employee Retirement and Income Security Act most employer sponsored retirement plans are not subject to creditors.