How do I get money out of my retirement plan?
Back by popular demand! More on Particpant FAQ's. We are listening - keep the feedback coming. If there is something you want us to write about we will! Here is more on the frequently asked questions of retirement plan participants.
FREQUENTLY ASKED QUESTIONS YOUR EMPLOYEES MAY ASK
HOW DO I GET MY MONEY OUT OF MY RETIREMENT PLAN?
You retirement account is part of a retirement plan. Retirement plans operate according to the terms and features specific to the Plan Document which was adopted by the plan sponsor (your former employer). To best understand how the plan operates, read the Summary Plan Description (SPD), and speak with your former employer or Third Party Administrator (TPA). The two most frequently asked questions are, “How do I put money in to the plan?” and “How do I get money out of the plan?” The most frequently asked questions below address questions related to how to get money out of the plan, after you no longer work for the company who sponsors the plan.
I NO LONGER WORK FOR THE COMPANY, HOW DO I GET MY MONEY OUT OF MY RETIREMENT PLAN?
- Contact your prior employer and request a distribution packet.
- Return the completed distribution packet to the company.
- Your prior employer will forward the distribution paperwork to their Third Party Administrator (TPA) who will prepare the paperwork required to close your account.
HOW LONG DO I HAVE TO WAIT FOR MY MONEY?
It may take several months to finalize your distribution. The reason for the lengthy process depends on:
- 1. What type of account you have,
- You may be invested in an individual account (often referred to as an “FBO” - for the benefit of account) which is valued daily. With this type of account, you are typically able to access the value of your account on a daily basis by logging into your investment custodian’s website (John Hancock, The Hartford, American Funds, etc.). Because these accounts are valued daily, and the funds held are for your benefit, the distribution process may take less time than if your account is held in a pooled account.
- A pooled account is an account that holds ALL plan money. Every employee’s money is invested in the same account. Each year (or as often as the Plan Document specifies, the TPA values the account and you receive a participant statement reflecting your account balance as of the day the account was valued (typically the last day of the plan year).
- 2. What the plan document allows,
- Your 401(k) Plan operates according to the Plan Document. The Plan Document specifies what the plan can and cannot do. The Plan Document contains a section specifically addressing how distributions may be paid after an employee terminates employment. The timing of the distribution process is clearly defined in the Plan Document. If the plan requires a wait before you can be paid, you will see that specified I the Summary Plan Description (SPD) provided to you when you became eligible to participate in the plan.
In general, an FBO account takes less time to distribute versus a pooled account, because the FBO account value is readily available, while the pooled account may take several months to value (after the close of the plan year). The timing of your distribution varies from plan to plan, and account to account. In order to best understand how the process works, read your SPD and contact your TPA or former employer to discuss the process.
DO I HAVE TO CLOSE MY ACCOUNT, ONCE I AM TERMINATED FROM EMPLOYMENT?
The answer to this question depends on the amount of your account balance and the terms of the Plan Document. Generally speaking, if your account balance is over $5,000, you may leave your account as is.
If your account balance is under $5,000 and you do not return a completed distribution packet, your employer may force your account out of the plan. The distribution packet details the options for you, and explains what may occur, should you fail to complete a distribution packet.
WHAT FEES DO I HAVE TO PAY TO CLOSE MY ACCOUNT?
The fee for processing a distribution varies, depending on what your employer agrees to pay on your behalf. The fees are disclosed in the Summary Plan Description or a Summary of Material Modifications (SMM). The distribution form itself may specify the fee to close your account.
In order to receive the most current answers to your FAQs, read the Summary Plan Description and contact your former employer’s human resources department or the TPA administering the plan. A five minute conversation may allow you to gain the necessary information to make the most financially sound decision regarding if, how, when and why you should consider a distribution from your retirement plan.
