Need to Know: Your 401 (k) Options when you leave your job

Robin Weingast 401kThe new year often means a career change for many people. But what does a new job mean for your retirement plan? Here’s what you need to know about changing jobs and your employer-sponsored retirement plan.

Typically you have four options – you can leave your money in its account, transfer it to an IRA, move it to your new employer’s plan, or cash out. Each option has implications for your finances, so here are some more details on each one:

Transfer into an IRA
This is an easy option that provides a few key advantages, most notably:

• You avoid taxes and penalties, which means your savings doesn’t take a hit
• You preserve your tax benefits
• Your savings become easier to manage – you’ll have fewer statements, and when it comes time to take your Required Minimum Distributions, you will have a centralized source.
• If you elect to transfer into a Roth IRA, you will avoid RMDs – you can withdraw at your own pace, which is particularly appealing if you anticipate having multiple sources for your retirement income.
• Your investment assortment may grow, since IRAs tend to offer more investment options than a traditional 401 (k).
However, be mindful that if you have company stock in your 401 (k) that has increased in value, then you should explore other options aside from an IRA, since company stocks moved to IRAs are taxed as income when withdrawn.

Keep your savings in your old 401 (k) plan
Many companies will allow you to keep money in your old 401 (k), even after you’ve left. This is certainly an easy option, and it has several key benefits:
• You retain the plan’s investments, fees, and features, plus you buy yourself some time to decide what you’d like to do with your money (all while earning more money)
• You avoid immediate taxation and penalties, and you preserve your tax benefits
• You have the option to transfer your savings at any time – typically once you leave a company, you are free to take distributions whenever you’d like, so you can move your money into a new account at any time.
• If you leave your job in or after the year you turn 55 (50 for public employees such as police and firefighters), you can take penalty-free withdrawals from the account.
You should keep in mind that if you have less than $5,000 in the account, you may not have this option and the plan may automatically roll the money into an IRA. If you have less than $1,000 in the account, you may simply receive a check.

Move your savings to your new employer’s 401 (k) plan
You are not required to move your savings into your new employer’s 401 (k) plan, but it may be the simplest, most streamlined solution for your money. You also benefit from a few key things
• You avoid immediate taxation and penalties
• You preserve your tax benefits
• You may be able to postpone the RMD past age 70 if you are still working
Be sure to fully understand your new plan’s rules, distribution parameters, and fees before you move your savings into a new 401 (k).

Cash out your savings
This seems, on the surface, like an attractive and easy way to access your funds. However, you should know a few things before cashing out your old 401 (k) plan
• The amount you withdraw will also be added to your taxable income, meaning you could lose as much as 49.6% to federal taxes
• You will have less money leftover to reinvest back into a retirement savings option, which will affect your long-term planning
In some cases, you may decide the penalties are worth it – but you should make sure you understand what they are before deciding on the cash out option.

If you have questions about how a job change will affect your retirement plan, then we’re here to help. Contact the Robin S. Weingast & Associates team for more information about how to make the decision that’s best for you.

Need to Know: IRS announces Determination Letter deadlines for Pre-Approved Defined Contribution Plans

Weingast 401k newsQualified Retirement Plans are required to be compliant with current laws and regulations.  The IRS, recognizing that it would be burdensome for Plan Sponsors to re-write their Plan documents every time a new requirement appears, allow Sponsors to comply operationally with any new requirements while only restating their formal Plan documents periodically.  For Pre-Approved Documents such as yours, a formal restatement is required every six years. Your current document must be restated no later than April 30, 2016.

A Pre-Approved Plan Document is one which the IRS has reviewed and confirmed as compliant with current requirements.  It may offer Plan Sponsors the option to choose among different features, but all of the features are IRS-approved.

The IRS recently made several key announcements about Pre-Approved Defined Contribution Plans, including:

– The IRS is in the process of  issuing final approval letters (“opinion and advisory letters”) for Pre-Approved Defined Contribution Plans that were previously restated for the law known as EGTRRA.

– In the period beginning May 1, 2014, and ending April 30, 2016, the IRS will accept applications for individual determination letters from employers restating in the current six-year period.

– An adopting Employer whose Defined Contribution Plan is eligible for the six-year remedial amendment cycle, who adopts by April 30, 2016, a Master & Prototype or Volume Submitter Defined Contribution  Plan that was approved based on the 2010 Cumulative List (i.e., current requirements), will be considered to have adopted the plan within the employer’s six-year remedial amendment cycle.

To read the full announcement from the IRS, click here.

The Plan Documents you received from Robin S. Weingast and Associates, Inc. were drawn up in template form by the software company DATAIR.  DATAIR is in the process of modifying its software to reflect any final instructions from the IRS.  We expect to begin receiving the new software within the next few weeks.

This resource further explains what this may mean for your business.

The Robin S. Weingast and Associates, Inc. team is here to help throughout this process. We will be working with each of our clients to make sure they understand this announcement and comply with IRS restatement requirements in an orderly, painless and timely manner.

If you have any questions, please contact us and we would be happy to assist you!

Sources: IRS, Wolters Kluwer Law & Business, American Society of Pension Professionals & Actuaries, DATAIR

Need to Know: When Should I Start Receiving Retirement Benefits?

Many Robin Weingast & Associates, Inc. clients want to know the best time to start receiving retirement benefits.  Not only do our clients have to make this decision for themselves, their employees often ask for advice on how to maximize the benefits of their retirement plans.  In fact, this is such a common question that the Social Security Administration has prepared a short publication as a guideline.

Some highlights from their recommendations:

1) This decision is personal and involves a careful consideration of many factors:

– Do you want a smaller amount of money each month, sooner or a larger monthly payment for a shorter duration?
– What are your current cash needs (both personally and for your family)?
– Do you have additional income sources?
– What is your current state of health?
-Do you plan to keep working? This will impact your monthly benefits if you elect to receive them before your full retirement age.

2) Life expectancy is longer than it used to be. This is great news that also means your retirement may be much longer than you think.  Approximately one-third of all people who are 65-years-old today will live to be 90. It’s important to consider this when determining a timeline for receiving benefits.

3) Your decision may impact your family—both your spouse and your children who may be eligible to receive benefits.

4) While your total overall benefit distributions will not change, your monthly payments will differ significantly based on when you opt to receive benefits.

Robin Weingast Retirement planning

Credit: www.socialsecurity.gov

This chart is from the Social Security Administration’s article and gives you a breakdown on how your benefits differ based on the age at which you opt to begin receiving benefits. It assumes a benefit of $1,000 at a full retirement age of 66. Notice that receiving benefits at 70 versus 62 results in a 32% monthly increase.

The article explores each of these points in depth. If you would like to read more, you can download the full article here.

Have questions?
The Social Security Administration offers several resources on their site, most notably an online benefits planner and an online Retirement Estimator.

Need to talk?
Online resources are great, but as always, the Robin Weingast & Associates, Inc. team would be happy to discuss a plan that works for you. We would also be happy to help you provide your employees with resources to help them make the best decision about when to receive retirement benefits. Contact us today to ensure that your retirement is personally and financially fulfilling.

Robin Weingast featured in the March 2014 Suffolk Lawyer

Robin Weingast featured in March 2014 Suffolk Lawyer sharing her benefit planning expertise.Employee benefit expert Robin Weingast recently shared her 30+ years of knowledge with the Suffolk Lawyer, the official publication of the Suffolk County Bar Association. In “Cash Balance Defined Benefit Retirement Plans—How to Increase Your Tax Deductible Plan Contributions,” Weingast explores if adding a Cash Balance Defined Benefit Plan is a good fit for your company.

As you know, we are currently exploring Cash Balance Plans in our special series (catch up on part 1 and part 2), and in her article for the Suffolk Lawyer, Robin goes into detail on the many advantages of a Cash Balance Defined Benefit Plan, including:

1) The potential for larger tax deductible contributions than permitted under Defined Contribution (401(k) Profit Sharing Plans) for owners and key employees—which shelters your business profits from taxes

2) Tiered benefit levels, allowing partners and employees to have different levels of contributions

3) A greater appreciation of the plan and its benefits by your employees

4) Less volatility and cost

5) Greater funding flexibility

 

The article also explores if a Cash Balance Defined Benefit Plan is a good fit for your company, and breaks down the many factors to consider, including company demographics (including the age of your staff and your age relative to them), taxes, and if your company has the resources to offer this type of plan.

These are just a few of the many insights offered in the piece. You can download the full article here..

Above all, any benefit plan needs to be thoughtfully constructed and carefully managed by a qualified team of experts. As always, Robin Weingast and her firm of enrolled actuaries, certified pension and employee benefit consultants, and financial and insurance advisors are available to discuss your options for a customized, tax-favorable, and innovative retirement program that is current with ever-changing tax laws. Contact the Robin Weingast team today for more information.