First, because the 401(k) plan is set by the employer, each company’s plan will have many different terms. According to the experience of the giant panda, some companies’ plans require employees to be over 21 years old to be eligible to participate in the 401k plan, and some companies will set a waiting period, usually three months to six months, only through this period of waiting After this period, employees are eligible to join the program. The money in 401(k) is generally handed over to large professional investment institutions.
Removing 401(k) age limits and fines
After saving the 401(k) Plan, many students must be very concerned about when they can withdraw the money they have deposited. The US government stipulates that after you are 59.5 years old, you can withdraw this pension. If you take it early, then you will have a 10% penalty; after 70.5 years old, you must withdraw it every year. Part of the funds, and can no longer deposit into the 401(k) Plan, otherwise, you will also incur certain penalties.
In addition, this money also has some special circumstances that can be received in advance. If you are 55 years old, and you are planning to retire, and your company is continuing to undertake your 401(k) Plan at this time, then you can each Withdraw a portion of the amount each month as one of your income so you don’t have to pay the 10% penalty. There are other hardships like paying huge medical bills / becoming disabled/unemployed for 12 weeks/account holder dying etc.
If the account holder dies, all amounts in the account belong to one or more persons designated by the account holder.
Waiting Time /Vesting Period to be eligible for employee match funds
Finally, the 401(k) Plan also has a time limit/vesting period for the employee to take over the funds for the employee match. Employers have the right to set a waiting period for an employee to use the employee match funds. Generally, this period is 1-5 years. If the employee quits during the waiting/vesting period, the employer can reclaim the employee match portion. In the following, how to deal with the 401(k) Plan after job-hopping will also be introduced in detail.
Can I get a 401(k) loan to buy a house?
Many classmates who have just started working may not have their own houses yet. They often hear people mentioning that the 401(k) Plan can take out loans and help you buy a house, but every time I ask my friends, everyone has different opinions. , Giant Panda is here to share with your classmates about 401(k) Plan loans.
The first is to get money from the 401(k) Plan. There are two completely different ways, but they are easily confused by everyone.
One is distribution, also known as withdrawal, which takes the money you saved from your 401(k) Plan. Many friends will say, didn’t it just say that you need to pay a 10% penalty for taking money from your 401(k) Plan before the age of 59.5. 401(k) Plan generally has an option called “hardship withdraw”, which is to help people who need cash flow very much to withdraw some of the money that was previously stored in the 401(k) Plan to help temporarily tide over the difficulties. According to regulations, the hardship withdrawal option allows first-time homebuyers to withdraw up to $10,000 from their 401(k) Plan account and avoid a 10% tax penalty. But after you take out the money, the money must pay the corresponding tax in the tax year.
Therefore, in the case of lack of cash flow, some students can apply for hardship withdrawal as a down payment for the purchase of the real estate. Note that only $10,000 is not subject to fines, and extra withdrawals are subject to a 10% penalty and tax.
The other is the more common loan, which involves taking out a loan from your own 401(k) plan. Typically, the loan is a five-year or less loan, and the loan amount is $50,000 or half of your 401(k) Plan account deposit, whichever is less. Since a 401k loan will not bring a 10% tax penalty, and there is no need to pay additional taxes, many students will prefer a 401k loan when making a down payment.
However, if you use a 401k loan, there is also a hidden danger that comes with it, that is, if you are fired by the company during the loan period, or leave the original company for some reason, then you need to repay the loan within 60 days. All the money is returned to the company. If it is not returned within 60 days, the unreturned part will be regarded as the money you have withdrawn from the 401k account in advance, and a 10% tax penalty will be incurred. It will also need to be included in the income of the year. Pay taxes. To a certain extent, this may create a situation where cash flow is tight.