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April 2022  Volume 20, Number 4        
 

 

401(k)s Do’s and Don’ts

When employees decide to leave their jobs, they have a lot on their minds. So, they don’t always give a lot of thought to what to do with their 401(k) plans. It’s an important decision that can have a big impact on their retirement savings.

Your human resources department can counsel them on what they can do and shouldn’t do:

Can Do

  • Nothing: The easiest option is keeping their plan with your company. The downside for them is that you might need to pass along to them the fees you normally pay for employees. If the account balance is below $5,000, your account upkeep expenses are probably high, and you might want to advise against leaving the money in the plan. If the account is worth $1,000 or less, most 401(K) plan sponsors just send the employee a check – which is subject to taxes and penalties.
  • Roll it Over to their New Employer’s Plan: Most employees choose to roll their old plan into the 401(k) account they get from their new employer. The employee will need to check to see if they can roll it over right away or if they need to wait until they’re eligible for their new plan.
  • Roll into an IRA: Funds from a 401(k) also can be put into an Individual Retirement Account with a simple account- to-account transfer. Later, the employee can move their account back into their future employer’s 401(k) plan.

Shouldn’t Do

  • Cash Out: Many employees are tempted to cash out their plan and use the money for bills or other expenses. The problem is that if they are younger than age 59.5, they will have to pay income tax and a 10 percent penalty.

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In this issue:

This Just In ... Health Insurance Premium Penalties

Compliance Issues for The Rest of 2022

Life Insurance for the Life of Your Business

Employers’ Guide to Understanding ERISA

401(k)s Do’s and Don’ts

 

 


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