The Choice of a Lifetime
Retirement, lifestyle changes, employee turnover… We live in times of significant change for plan sponsors, and for participants. Your plan has played a vital role in helping your participants prepare for this day—and now they are faced with a critical decision—what to do with those savings now that their employment status is changing?
To help you help them, PLANSPONSOR is launching an exclusive new series. A guide for participants, designed to offer a succinct and informative roadmap that can help them make more informed choices—on a decision that could affect the quality of their lives for years to come. You can tear it out, order reprints, or order the PDF file from PLANSPONSOR and distribute it among your participants.
What you need to know
Your participant has requested a withdrawal—you need to inform the participant of the distribution options for his or her 401(k) account balance.
In general, the participant will have five options:
1. Keep the money in your plan
2. Move the money to another qualified plan
3. Move the money to an IRA
4. Take the money as an annuity
5. Take the money as cash
It pays to share the IRS Safe Harbor explanation with the participant. This explains to the employee the action you, as the plan sponsor, have to take if he elects to take his money as cash, specifically the tax repercussions. The full statement is available on ParticipantInfo.com.
The Department of Labor currently is implementing regulations based on the new tax law. Among other things, the new law requires plan sponsors to roll distributions over to an IRA if the participant account is between $1,000 and $5,000, unless the participant indicates otherwise.
Also, you should make sure the participant has all the proper paperwork to accomplish the option he chooses and to be ready for any questions he might have about the options and their consequences. The full statement is available on PLANSPONSOR's new participant information site, ParticipantInfo.com, and in the Post-Retirement Solution on PLANSPONSOR.com.
Read more in the participant guide, "Take it or Leave it"