Frequently Asked Questions
- What is the maximum I can contribute to my account per year?
This amount varies from plan to plan, but generally the amount can range from 0% to 100% of your compensation or $15,500 per year, whichever is less.
- How can I change my deferral/contribution amount?
You can request a Salary Deferral Change Form from your Plan Administrator.
- I would like to cancel my salary deferrals for a while, is this possible?
Yes, many plans allow you to cancel your deferrals at any time. Other changes can be made during the allowed deferral change times. To reinstate your deferrals you must fill out a new form with the new percentage or dollar amount.
- Under what circumstances may I take out a loan?
If your plan allows loans, you may generally borrow up to 50% of your vested balance. The minimum loan amount and number of loans you may take varies from plan to plan.
- What is the maximum I can borrow from my plan?
The IRS limits the amount that can be borrowed from retirement plans to $50,000 within a 12-month period, or 50% of your vested account balance, whichever is less. The maximum in your plan may be lower.
- Is there any interest assessed on my loan?
Yes. You will pay interest on your loan, however, both the principal and interest you pay will be deposited directly into your account as your payments are made.
- Why do I have to pay myself interest?
Since your 401(k) account is set up for your use after you retire, any money that you withdraw before you retire is no longer generating earnings to maximize your retirement savings. In order to make up for the fact that your loan money is not currently invested, the government requires that you pay yourself interest and therefore, continue to increase your retirement savings.
- What is an amortization schedule?
An amortization schedule is a timeline that illustrates your principal and interest payments for the life of your loan. You will receive an amortization schedule with your loan promissory note when you first request your loan.
- Can I pay off my loan early?
You have the option of paying off your entire loan balance early. Please contact your Plan Administrator to request a loan payoff amount.
- What happens if I leave my company before I pay off my loan?
If utilizing the TRA prototype document, if you terminate employment with your company prior to paying off your loan, you have two options. Your first option is to pay off your entire loan balance within 30 days of your termination date. Please contact your Plan Administrator to request a loan payoff amount. If you choose not to pay off your loan, then the outstanding amount will be considered a taxable distribution from your account and you will receive a Form 1099-R for the year in which your loan defaulted.
- If I have an outstanding loan and I need additional cash, what are my options?
If you already have the maximum number of loans outstanding, depending on the reason for which you need the money, you may have one or two options. Your first and best option is to entirely pay off one of your outstanding loans. If paying off your loan is not financially feasible for you, depending on the reason for your financial need, you may be able to take a financial hardship withdrawal. The drawback to this type of withdrawal is that, unlike a loan, this is a permanent withdrawal from your account. Refer to the questions related to financial hardship withdrawals for more details about this option.
- What happens to my account if I die?
If you die, your account will be paid to the beneficiary you designated. If you do not designate a beneficiary, the plan will pay the amount to your spouse, children, or your estate.
- What do I do if I am the beneficiary on an account and the account holder has passed away?
If you are the beneficiary on someone's retirement account and that person passes away, you should contact your Plan Administrator to request a Death Distribution form.
- What can I do with the money I receive from a distribution due to death?
If you are a spouse beneficiary, you can either have the money sent directly to you or you can roll it into an IRA. If you are not a spouse beneficiary, then you may not roll the money into an IRA. The money will be sent directly to you and is taxable in the year in which you receive it.
- How can I gain access to my 401(k) savings 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. Contact your Plan Administrator to determine if you meet the criteria.
- What happens if I leave my employer?
If you request that a benefit payment be made directly to you, the Plan Administrator is normally required to withhold 20% for U.S. income taxes from the taxable portion of the distribution. The withheld amount is sent to the IRS. If the payment is directly rolled over to an IRA or another qualified retirement plan, there will be no withholding. Detailed information about the tax rules on benefit payments is provided when you request a payment from the plan. You will receive an IRS Form 1099-R at the end of the year reporting this withholding and the taxable portion of your payment.
- If I leave my company, can I leave my money in my 401(k) account?
When you terminate employment with the company that sponsors your 401(k) plan, you may leave your 401(k) savings in your account depending on your vested account balance. Please check with your Plan Administrator on the specific dollar amount required.
- I have already withdrawn my 401(k) funds, but I received a statement showing a small remaining balance. How do I go about withdrawing these funds?
Occasionally, after you have already received a check for the balance in your account, you may receive a dividend from one of your mutual funds, a company match, or an additional salary deferral. If this happens, you may call your Plan Administrator to request a withdrawal of these funds.
- When can I take a retirement distribution?
The plan document sets the earliest age at which you may request a retirement distribution.
- If I'm 70 1/2, am I required to start taking distributions from my retirement account?
Dependent on your plan document provisions, you may be required to begin taking distributions from your account.
- What happens to my account if my spouse and I 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 as stipulated by the IRS and the U.S. Department of Labor.
- What is a Qualified Domestic Relations Order?
A Qualified Domestic Relations Order (QDRO) is a court order that assigns all or a portion of the benefits which would otherwise be payable to a participant under a qualified retirement plan to another person. 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.
- I am going through a divorce; what do I need to do to expedite the 401(k) distribution process?
If you are going through a divorce and your retirement account is included in a division of property, you should inform your attorney that a QDRO will be involved. If you do this, the parties involved can negotiate the terms and the attorney can make certain the court order or divorce decree includes the provisions required by the IRS and U.S. Department of Labor.
- What is a 1099-R form and under what circumstances should I receive one?
A 1099-R form is used for tax reporting purposes and is sent to any individual who has withdrawn funds from a retirement plan account.
- When will my 1099-R form be mailed?
If you had a taxable distribution the 1099-R will be mailed no later than January 31st of the following year.
- What if I originally decided to have my retirement savings sent directly to me and then I change my mind and decide to roll my funds over to an IRA or a qualified plan?
If you originally had your payment sent in a check made payable to you, you generally have 60 days to roll it into a qualified plan or IRA. Some payments, such as financial hardship withdrawals, are not eligible for rollover. Any amount that was withheld for taxes (from a payment eligible for rollover) may also be rolled to a qualified plan or IRA, however, you must make up the amount withheld from personal money since the amount withheld from the distribution is immediately deposited with the government.
- Is there a penalty tax assessed on retirement savings distributions received too early?
Generally, if you receive a distribution from your retirement plan account prior to age 59½, a 10% penalty tax will apply in addition to the applicable federal (and in some cases, state) income taxes. In some cases, such as distributions due to death, disability, or termination of employment after age 55, the 10% early withdrawal penalty tax does not apply.
- What is a 401(k) plan?
A 401(k) plan is a type of retirement plan which is named for a section of the tax law that allows employees to contribute a portion of their compensation, before income taxes, to a company-sponsored retirement plan. The amount the company withholds from your paycheck is called a 'deferral'.
- What are the long-term benefits of pre-tax contributions?
When you contribute to your 401(k) account, the money comes out of your paycheck before federal and most states' income taxes are assessed. This means that you will pay lower income taxes than you would have paid if you had not contributed to your 401(k) plan during the year. Your contributions are invested and start earning interest and capital gains on a tax-deferred basis. When you start withdrawing money from your account, usually at retirement when you may be in a lower tax bracket, you will pay regular income taxes on the contributions and earnings you withdraw.
- What is the difference between a profit-sharing plan and a 401(k) plan?
In a traditional profit-sharing plan, the employer makes contributions to the accounts of eligible employees regardless of whether they choose to contribute to the plan. In a 401(k) plan, the participant chooses to contribute to the plan and the employer may or may not make matching contributions to the 401(k) plan in addition to the amounts the participant elects to defer. 401(k) plans may also have a profit-sharing feature allowing the employer to make profit-sharing contributions to the 401(k) plan accounts of eligible employees.
- Is it possible to move funds from my previous employer's retirement plan to my new company's 401(k) plan?
Yes, as long as the money comes from a qualified retirement plan and the plan allows rollovers, you may transfer funds into your new employer's 401(k) plan. Please contact your previous 401(k) administrator to request a Direct Rollover Transfer form.
- What is a qualified plan?
A qualified plan is a plan that qualifies for special tax consideration under section 401(a) of the Internal Revenue Code. Your funds must come from this type of plan if you wish to roll them into your company's 401(k) plan.
- Can I make after-tax contributions to my 401(k) plan?
This provision varies with each plan. Please contact your Plan Administrator to see if this provision is included in your company's plan document.
- What is a vesting schedule?
A vesting schedule is a timeline that shows the percentage of your company contribution account that you are eligible to receive after a specified number of years of service.
- What does it mean to be fully vested?
To be fully vested means that when you leave your company, you are entitled to receive all of the money that the company has contributed to your account and any earnings on that money. (Note: You are always fully vested in the money you contribute to the plan and any earnings on that money.)
- What if I leave my company before I am fully vested?
If you leave your company before you are fully vested, then you will receive only the vested percentage of your company contribution account. The percentage is based on the plan's vesting schedule.
- What is an in-service withdrawal?
Some plans allow participants to withdraw money from the plan before retirement even though they do not qualify for a hardship withdrawal. In some plans, once employees reach age 59½ they may withdraw all or a portion of their account. You may contact your Plan Administrator to find out if your plan allows in-service withdrawals.
- What is a financial hardship withdrawal?
Many plans allow you to withdraw money if you have a financial hardship. Generally, a financial hardship withdrawal is a type of withdrawal that is allowed by the IRS for six specific reasons. The purpose of this type of withdrawal is to alleviate financial difficulties when no other monetary resources are available. For this type of distribution, you may usually only withdraw as much as you have put into the plan (up to the amount of your immediate and heavy financial need). For most plans, any funds that the company has put into your account will not be available for withdrawal.
- Under what circumstances may I make a financial hardship withdrawal?
A financial hardship withdrawal is generally allowed for six specific reasons:
1. Expenses for medical care (described in Section 213(d) of the Internal Revenue Code) previously incurred by you, your spouse or your dependent or necessary for you, your spouse or your dependent to obtain medical care;
2. Costs directly related to the purchase of your principal residence (excluding mortgage payments);
3. Tuition, related educational fees, and room and board expenses for the next twelve (12) months of post?secondary education for yourself, your spouse or dependent;
4. Amounts necessary to prevent your eviction from your principal residence or foreclosure on the mortgage of your principal residence;
5. Payments for burial or funeral expenses for your deceased parent, spouse, children or other dependents; or
6. Expenses for the repair of damage to your principal residence that would qualify for the casualty deduction under the Internal Revenue Code.
- What kind of documentation is necessary for a financial hardship to be approved?
The IRS strictly limits the reasons for which you may make a financial hardship withdrawal. Your plan may require documentation concerning the amounts you need to withdraw (for example, medical bills) or your financial information to determine if you qualify for a withdrawal.
- Are income taxes withheld from a financial hardship withdrawal?
A financial hardship withdrawal is actually removed from your retirement savings permanently. Unlike a loan, you may not repay this money to your account. Therefore, if you decide to withdraw funds from your account for a financial hardship, you generally must pay regular income taxes on the amount you withdraw. You may elect an amount be withheld for federal income taxes (and some state income taxes) at the time of the withdrawal, but if no election is made, the IRS requires that 10% of the withdrawal be withheld for federal income taxes.
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