Many find it difficult to navigate the regulations to make changes to their 401(k) without penalty. Here we cover different ways changes can be made or not made to your 401(k).
Contribution Limits
Two main restrictions apply to almost every 401(k). The first is contribution limits, which, you guessed it, determine how much can be contributed annually to a 401(k) account. In 2022, contribution limits for 401(k)s currently sit at $20,500 annually. In addition, those that are age 50 or older may make additional catch-up contributions up to $6,500 annually.
Withdrawals
The second restriction is making withdrawals. This is a bit more complicated. Most 401(k)s restrict all withdrawals made before age 59½. Any withdrawals made before this will incur a 10% penalty as well as income tax. However, other 401(k)s may have more restrictive withdrawal criteria based on whether you are working, or how long you have been working at the company that provides your 401(k). Withdrawals may also be allowed in circumstances of financial hardship, and loans may be allowed under certain circumstances.
This all changes if the account holder is deceased. If this is the case, listed beneficiaries may make withdrawals or transfer the funds without the associated penalties.
Before making a withdrawal, be sure to contact your plan provider to see under what circumstances a withdrawal is possible and what penalties are involved if the withdrawal criteria is not met.
Investments
Despite these basic restrictions, there are still aspects of your 401(k) that are adaptable and customizable. The main element is your investments. If you don’t know what investment options are afforded to you, research your plan or contact your plan provider directly. Most plan providers offer different investment options such as mutual funds, ETFs, stocks, and bonds. However, the range of investments varies from plan sponsor to plan sponsor.
At LRS, we have a dedicated portal focused on putting the power in your hands. At any time, you can change what you invest in and how much money is invested. However, before making changes, contact your plan provider to determine how often you can change your contributions and investment strategy.
Changing Jobs
If you change jobs, you have several options to manage your 401(k). If your new employer offers a 401(k), you can roll over your funds to the new plan. If your new employer does not offer a 401(k) or you would rather have an individual plan, you can transfer your money to an IRA.
There are certain regulations on transferring your retirement funds based on the amount in the retirement account. If the funds in the account are below $5000, you have 60 days to transfer it to your new plan. If you do not transfer within 60 days, it’s still your money, however, It is not required for employers to allow you to remain a part of the company 401(k). If your retirement investments reach $5000 or more, you may choose to keep the money in your old employer’s 401(k), although you can no longer make contributions.
For more tips and information about retirement plans, contact us.
