401k withdrawal? How do they work? When I can withdraw my money? What if I change jobs? These are some of the questions that Hispanics make when investing money in these accounts for retirement. Here are answers to some of these questions.
Understanding 401 (k)
What is it?
It is a benefit offered by some employers to their employees to help them save for retirement. These defined contribution plans have limits on the amount that can be invested and money is deducted directly from your salary before taxes. Depending on the plan, the employer is required to contribute a certain amount or have the option to do so. And in case you make the contribution, the employee is entitled to take possession of the contribution automatically or in a specific period as defined by the plan.
How does it work?
The employee chooses how much money you want to invest – up to a limit established by the plant and that contribution is automatically deducted from your salary. The contribution is made before collecting income taxes. Then it is deposited directly into the investment plan the employee has chosen.
This selection may include mutual funds, individual securities, annuities or bonds. Both the choice of investment instruments as the investment risk borne by the employee and not the employer.
Can I get that money?
These plans are intended as a way of saving for old age, so the IRS restricts access to these funds before retirement. Maybe your plan allows 401k withdrawal for financial hardship.
The IRS accepts six reasons that could be considered as immediate financial need:
• Certain medical expenses not reimbursed.
• The purchase of a principal residence.
• Enrolment in community colleges for next year.
• avoid eviction or foreclosure of their home.
• Certain natural disasters.
• Funeral expenses.
Will I be charged for taking my money?
It is important to note that when funds from 401 (k) before the age of retirement are removed, you have to pay taxes that were not collected by the government to deposit the money. It is also quite possible that the investment firm charged a 10% penalty for early 401k withdrawal.
What happens to the money if I change my company?
If you change your work generally you have four options regarding your money:
• You can leave the money in the current plan.
• You can transfer (roll over) your money directly to an approved retirement plan sponsored by another employer.
• You can transfer your money into an individual retirement account (IRA, for its acronym in English) by a company that are not sponsored.
• You can make a full or partial 401k withdrawal in cash. In this case you will pay the taxes not collected on this money and possibly some penalties.
The best way to make these transactions is to contact your former employer and the new company to explain how to perform these transactions.
How much should I be saving in my 401 (k)?
Most financial advisers recommend it save at least 10% of salary.
However, if that is too difficult, try the option of 1%. Start saving an amount that you can afford and every year that passes increases by 1%.
Soon you’ll be saving more than they could have imagined.
What happens to my money if I die? An employee who has a 401 (k) can decide who will get his money if he dies. When a person dies, the person you choose as your beneficiary will receive the money in your 401 (k).
When I can withdraw my money?
Your money can be withdrawn without incurring any fees or penalties after the age of 59.5 years of age or in case of his death this money is distributed to his wife (o) or benefit.
I want to start contributing to a 401K, where do I start?
Talk to your human resources department and ask about pension plans that are available in your company and if there are additional benefits, such as whether they contribute additional money on the money you contribute.