There is no vesting required for self-employed 401(k) (aka Solo K) plans, since you are the employer and the employee. Vesting is a process in which assets that were completely owned by one party are eventually made the property of another party who has had use of the assets. In retirement plans, employer contributions typically have a vesting schedule, partially to give employees a reason to stick around for a few more years. Continue reading...
Employer contributions to SIMPLEs are immediately vested to the employee. The employer’s contributions into SIMPLE IRAs do not have any vesting restrictions. In other words, the contribution belongs to you immediately after it has been made, notwithstanding standard IRS rules for withdrawals from retirement accounts. SIMPLEs do have some restrictions during the first two years, however, that are known as the ‘Two Year Rule.’ Continue reading...
All SEP contributions are immediately vested for employees. SEPs are funded entirely by employer contributions, and these contributions are immediately vested for the employee. In other words, the contribution belongs to you immediately after it has been made, notwithstanding standard withdrawal rules. Withdrawal rules for a SEP are the same as those for Traditional IRAs. Continue reading...
Employers can contribute to an employee’s 401(k) on a matching basis. Some employers will make additional contributions to your 401(k) based on the amount of your own contributions. Matching can be done on a dollar-for-dollar basis, meaning that for every dollar you contribute to your account, they will add a dollar as well. It can also be done using a factor, such as ½, meaning they will contribute a dollar every time you contribute two. Continue reading...
Vesting is the schedule or process by which certain assets are eventually considered the property of an individual who uses them. If your employer provides some sort of matching, flat, or profit-sharing contribution to your retirement account at work, you will probably not be allowed keep the entire amount that they contributed if you change jobs or retire before a certain number of years have passed. Continue reading...
Vesting rules depend on the type of Keogh contributions being made. The IRS imposes certain rules on Keogh Plans, which includes vesting restrictions. Different employers might have totally different vesting schedules, as long as they satisfy the IRS rules. It depends on the type of contribution being made, such as matching or profit-sharing or money-purchase contributions, whether the plan is a QACA, and so on. Many contributions are immediately vested, while some are gradually vested over a few years, and some are on a cliff-vesting schedule. Continue reading...
Generally a plan will allow you to leave your assets in there indefinitely, but this is probably not ideal for you. Most custodians will be happy to hold onto your account dollars as long as you’re willing to leave them there. They don’t have to spend any time servicing your account since you can’t make contributions and probably aren’t even able to reallocate your assets, and they will continue to make money on your account with the built-in fees. You may be charged inactive account fees or small account fees as well. Continue reading...
You may not be vested in a pension if you lave too early, or you may have to accept a lower payout. This depends on how many years you worked for your employer, and other factors which are described in your pension plan document. In some cases, the employer can specify a minimum number of years you have to work for the company in order to receive a Pension. Otherwise, the amount you receive will be vested in portions over a few years, until you will be able to leave your job and keep 100% of the accrued Pension benefits. Continue reading...
Different plans will have different vesting schedules, within regulatory guidelines. The IRS imposes certain rules on Money Purchase/Profit Sharing Plans, which includes vesting restrictions. Different employers might have totally different vesting schedules, as long as they satisfy the IRS rules. Vesting means that the employer contributions to a plan become the property of the employee, and the employee will be allowed to keep ownership of those assets even if the employee changes jobs before retirement. ‘Graduated vesting’ or ‘cliff vesting’ may be used. Continue reading...
In general, this won’t even be an option for many. Cash balance plans do not permit partial withdrawals. If you have separated from service at the employer, you can take your entire vested amount with you. You can cash out your balance and pay income taxes on it, as well as a 10% IRS penalty if you’re younger than 59 ½. This penalty may also be avoided if you separated a from service after age 55; these rules are the same for 401(k)s and other qualified plans. Continue reading...
A SEP is like a profit-sharing plan that uses some Traditional IRA rules. A SEP IRA is a benefit for employees that uses employer contributions to fund retirement investment accounts for each employee. Contributions are made on a pre-tax basis, the account grows tax-deferred, and the withdrawals are taxed as income. The employer contributions are immediately vested to the employees, who can exercise discretion with investment choices and allocations, among the investment options available in the plan. Continue reading...
401(k) account balances can be taken to the next place of employment, rolled into IRAs, or cashed out. Sometimes people don’t know what to do with a 401(k) when the change jobs. If it sits there too long, and the employer cannot locate you because you changed addresses, your account balance will be taken over by the State in which you worked. Your state should be able to locate your file using your social security number and pay you the account balance as of the date they froze the account. Continue reading...
Lump sum distributions are when the entire balance of an account is paid out at once. After you retire, you can elect to receive your money in a lump sum. Of course, you will end up paying income taxes on the entire distributed amount that year. There is also what’s called the mandatory 20% withholding, which requires custodians to withhold 20% from retirement plan distributions if they are not part of a trustee-to-trustee transfer (such as funding an IRA). Continue reading...
Cash balance plans are a type of pension in which the benefit is stated as a future account balance rather than an income stream. A Cash-Balance Plan is very similar to a normal Pension Plan. You do not technically contribute anything to the plan (unless you are an owner-employee), and you don’t have any control over the assets which are managed on your behalf. In a normal pension, the benefit waiting for you in retirement is a monthly income stream, but in a Cash Balance plan, your future benefit is stated as an account balance, which you will be able to take as either a lump sum or an income stream. Continue reading...
Employer contributions in the form of company stock can pose some liquidity issues, but it can also be a nice benefit. If the matching contribution to your 401(k) is made in company stock, you have to weigh carefully your overall exposure to the financial well-being of your company. You are already receiving the current income (salary) from your employer. You may also have taken advantage of an Employee Stock Purchase Plan (ESPP) or Employee Stock Ownership Plan (ESOP) outside of the retirement plan. Therefore, you might already have a lot riding on the stability of your company. Continue reading...
Different 401(k) custodians will have different distribution options available to participants in retirement. After you retire, you have at least two disbursement options: lump-sum distribution and periodic distribution. If you take a lump-sum distribution that is not bound for an IRA, you will incur a significant tax bill, since all 401(k) distributions are taxable. Periodic distributions may mean that every so often you can choose an amount to be paid out to you on a quarterly basis, for example, while your investments remain intact and you attempt to accrue more interest on your money. Continue reading...
Withdrawals and loans can be taken out of a 401(k) before retirement, but the money may be subject to penalties, conditions, and taxes. It is quite common that 401(k) funds are needed before retirement, even though the IRS wants you to wait until you’re 59 ½, and will generally want to levy a 10% penalty on any premature withdrawals. Most plans allow employees to take non-taxed loans out on their balance, which may stunt the growth of the account which was intended for retirement, but if the funds are paid back on-schedule, as stipulated in the plan’s loan agreement, the employee can get back on track quickly. Continue reading...
The IRS Code allows for certain penalty-free withdrawals, and gives the plan administrator the freedom to define certain other hardship exemptions. Certain kinds of retirement plan withdrawals are excluded from the 10% early withdrawal penalty tax. These include medical expenses which exceed 7.5% or 10% of Adjusted Gross Income, distributions to the family members of active duty military personnel who have been called to active duty, and distributions needed if the participant becomes disabled. Continue reading...
Most 401(k)s will accept custodian-to-custodian transfers from old 401(k)s. If your new employer has a 401(k) plan, you can usually rollover your old 401(k) into a new one, but you will need to check with your new employer to find out for sure. Keep in mind that the choice of mutual funds and other investments in the new 401(k) might be totally different from the investment options that your old employer offered. This means that you might need to liquidate all of your positions in the old 401(k) and transfer the cash balance. Continue reading...
Yes, in fact this is what most people do. This is a very popular choice. Because Traditional IRAs receive the same kind of tax treatment as 401(k)s, with pretax contributions, tax-deferred growth, and taxable withdrawals, the IRS allows you to move funds over without creating a taxable event. Of course, you need to have an IRA account to do so, but it can be as easy as opening an account online and telling the custodian company the account information for your old 401(k). Continue reading...