How Well Do You Know the SPECIFICS of Your Employer-Sponsored Retirement Plan?

How Well Do You Know the SPECIFICS of Your Employer-Sponsored Retirement Plan?

Virtually anyone who has an employer-sponsored qualified retirement plan, like a 401K, 403B or the like, is aware of these general IRS rules:

• Your pre-tax contributions accumulate tax-deferred.
• Once you have reached age 59½, you’ll be taxed on your withdrawals as ordinary income.
• However, if those funds are withdrawn before age 59½, there is a 10 percent “early withdrawal penalty tax” in addition to the “regular” income tax on the funds withdrawn.

While it’s a great idea to know these general rules, our firm has always cautioned investors to, more importantly, zero in on the specific rules of their employers’ plans. The reason is that whenever your plan’s rules differ from general IRS rules, the specific rules of your plan prevail.

For example, let’s say you are younger than age 59½ and would like to withdraw money from your 401K. You are aware of the fact that under IRS rules, you’ll have to pay an additional 10 percent penalty tax. Although the IRS general rules allow such withdrawal – and I’ll bet the IRS would be happy for the additional 10 percent revenue – if your employer’s plan does not allow you to access those funds early, you cannot make the withdrawal.

Over the years, many folks who have consulted our firm for their retirement planning needs – which, by the way, is an extremely smart move – have been surprised to discover what they did not know about their plan’s specific rules. Just this past week, a lady who had recently retired came to us for retirement planning help. (Like I always say, it’s never too late to contact Laser FG when it comes to retirement planning!)

This lady told us that she’d been told by all the other advisors she had consulted with prior to coming to us, as well as the websites she’s read, that since she’s older than 60, she can access her employer-sponsored TIAA-CREF retirement funds “whenever she wishes.” The Laser FG strategist she worked with explained that while this is “generally” true, we’d need her permission to discuss the specifics of her plan with the current custodian (TIAA-CREF). She probably thought the strategist was ridiculous, wondering to herself, Does this guy know what the heck he’s doing?

To her amazement, the specifics of her employer’s plan read this way: Regardless of how long she’s held the account OR her age – notice the key word here is regardless – she is limited to withdrawing 10 percent of her account’s value per year, over nine years. So although she wanted to, needed to, and absolutely has to roll over her funds to a more advantageous vehicle in order to maximize her income, it will take her nine years to accomplish that.

The woman insisted that her best friend, who retired a few years ago from a different employer, was allowed to transfer her account in its entirety. The simple and only answer we could give her about the different allowances between the two plans was that the specifics of her friend’s plan allowed it.

More and more people fall prey to similar situations on a daily basis, simply because of an illness called generalization. Here’s some important advice: When it comes to YOUR retirement, please make sure you understand the specifics.

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Schedule your free, no-obligation consultation today and get the help you need to understand the specifics of YOUR employer-sponsored retirement plan! Call (301) 949-4449 or visit LaserFG.com.