There are a large number of 401(k) rules that are aimed at protecting both the contributors and beneficiaries of these popular pension plans. Here are some of the most frequently asked questions about 401(k) funds.
What happens to my contributions when I change employers? It does not matter why you leave a job you can and should take your 401(k) fund contributions (either all or part) with you and place them into your new employer sponsored retirement plan. When you do this it is called a rollover withdrawal.
Can I rollover my 401(k) fund to an IRA? Yes. In some ways an Individual Retirement Account gives you more choices and control over how your pension money is invested. The 401(k) fund has just seven ways to invest your money.
What is the best way to rollover my 401(k) contributions? The trustee-to-trustee transfer or a direct rollover is the easiest, quickest and best way to rollover your 401(k) fund. Especially since you get to keep the 20% tax withholding.
What happens if I don’t rollover my 401(k) fund? If your retirement fund is paid directly to you, you become liable to pay taxes and a tax fine. You have a 60-day window in which to complete the rollover into your new IRA account and you must transfer 100% of your funds. This includes the 20% withheld by the 401(k) administrator. You still owe the tax, but if you do transfer the 20% withheld from your funds, you can include the 20% deferred as income tax paid. It is very important when you know you are going to change employer that you talk to both your 401(k) administrator and the IRA advisers to be sure you know and follow the rules and protect your retirement income.
How much money can I put into my 401(k) fund? There is a maximum contribution of $15,000 and this ceiling goes up each year in $500 increments. The absolute maximum amount put in to your 401(k) plan is the lesser of 100% compensation or $42,000.
Can I make extra contributions to my 401(k) fund? Yes if you become 50 or older by the end of the year, you can put in “catch-up” contributions annually. The maximum “catch-up” contribution is $5,000.
However you can only put money in to your 401(k) plan with automatic salary deductions.
If I leave my job after a short time, will I still get my employer matching money? Possibly not if you stay with your employer for under three years. However, many companies are offering immediate vesting benefits to employees