If you have previously worked for a company, you may be familiar with the regulations for contributing to a 401(k) plan. But are you conversant with the withdrawal regulations? Federal law restricts the available withdrawal options for 401(k) plans. However, a 401(k) plan may offer fewer withdrawal options than the law permits and may prohibit you from withdrawing any funds until you depart Alcoa. Nevertheless, many 401(k) plans are more adaptable.
Recent research by Fidelity Investments shows that more 60-year-olds are choosing to take in-service withdrawals from their 401(k) plans to pay off debt or cover unexpected expenses. According to their analysis, nearly 1 in 5 60-year-olds took an in-service withdrawal in 2020, a significant increase from previous years. While it's important to carefully consider the potential impact of such withdrawals on retirement savings, for those with pressing financial needs, an in-service withdrawal can provide a valuable source of liquidity. (Source: Fidelity Investments, 'In-Service Withdrawals from 401(k) Plans: What You Need to Know,' March 2021).
First, consider a plan loan
Numerous 401(k) plans permit you to obtain funds from your account. Clients of Alcoa who do not qualify for a withdrawal, do not want to incur the taxes and penalties that may apply to a withdrawal, or do not want to irrevocably deplete their retirement assets may find a loan attractive. (You must also accept any available loans from all plans potentially maintained by Alcoa before you can withdraw your own pretax or Roth contributions from a 401(k) plan due to hardship.)
In general, you may borrow up to $50,000, or half of your vested account balance (including your contributions, Alcoa's prospective contributions, and earnings).
You may acquire the funds for a maximum of five years (or longer if the loan is for the purchase of your primary residence). In most cases, the loan is repaid via payroll deduction, with principal and interest being deposited back into your account. However, bear in mind that when you borrow, the unpaid principal of your loan is no longer contributing to your 401(k).
Withdrawing your own contributions
If you have made after-tax (non-Roth) contributions to your 401(k), you may withdraw those dollars (and any investment earnings on them) at any time and for any reason. You may only withdraw your pretax and Roth contributions (also known as 'elective deferrals') for one of the following reasons, and only if your plan specifically permits the withdrawal:
- You attain age 59½
- You become incapacable
- It is a 'qualified reservist distribution'
- You experience a hardship (also known as a 'hardship withdrawal')
Hardship withdrawals are only permitted if you have an urgent and substantial financial need, and only up to the amount required to meet that need. In the majority of programs, you must use the funds to:
- Purchase or renovate your primary residence if it was damaged by an unforeseen event (e.g., a hurricane).
- Avoid evictions and foreclosures
- Pay medical expenses for yourself, your spouse, your children, or plan beneficiaries.
- Pay specific funeral expenses for your parents, spouse, dependent children, or plan beneficiary.
- Pay for certain education expenses for yourself, your spouse, your offspring, or a plan beneficiary.
- Pay any income tax and/or penalties owed on the withdrawal itself.
With the exception of certain pre-1989 quantities that were grandfathered in, investment earnings are not available for hardship withdrawals.
In addition to the tax consequences described below, clients of Alcoa should also consider the disadvantages associated with hardship withdrawals. You cannot take a hardship withdrawal until you have withdrawn all other funds and taken all nontaxable plan loans from all retirement plans that Alcoa may potentially maintain. And, in the majority of 401(k) plans, the employer, such as Alcoa, is required to suspend your participation in the plan for at least six months after the withdrawal, meaning you could lose out on potentially valuable Alcoa matching contributions. Hardship withdrawals are not eligible for rollover. Therefore, Alcoa employees should closely consider a hardship withdrawal before making one.
Withdrawing employer contributions
Obtaining employer contributions from a 401(k) plan can be even more difficult. While some plans prohibit you from withdrawing any employer contributions prior to employment termination, others are more accommodating and permit you to withdraw at least some vested employer contributions. Contributions that have been 'vested' cannot be forfeited under any circumstances. In general, a 401(k) plan may permit you to withdraw company matching and profit-sharing contributions that have vested if:
- You become incapacable
- Your employer has some discretion regarding the definition of hardship for this purpose.
- You reach a certain age (for example, 59 12)
- You have participated for at least five years, or
- Generally, the employer contribution has been in the account for a minimum of two years.
Taxation
When you withdraw from your retirement plan, your own pretax contributions, company contributions, and investment earnings are subject to income tax. Contributions made after taxes will be exempt from taxation when withdrawn. Each withdrawal is presumed to include a proportional amount of taxable and nontaxable funds.
Your Roth contributions and investment earnings on them are taxed separately: if your distribution is 'qualified,' it will be completely exempt from federal income tax. If your withdrawal is 'nonqualified,' each withdrawal will be treated as a proportional distribution of your nontaxable Roth contributions and taxable investment earnings. A distribution is qualified if a five-year holding period is satisfied and the distribution is made after reaching age 5912 or becoming disabled. The five-year period commences on January 1 of the year in which you make your first Roth 401(k) contribution.
Unless an exception applies, the taxable portion of your distribution may be subject to a 10% premature distribution tax in addition to any income tax due. Distributions after age 5912, distributions due to disability, qualified reservist distributions, and distributions to pay medical expenses are exempt from the penalty.
Featured Video
Articles you may find interesting:
- Corporate Employees: 8 Factors When Choosing a Mutual Fund
- Use of Escrow Accounts: Divorce
- Medicare Open Enrollment for Corporate Employees: Cost Changes in 2024!
- Stages of Retirement for Corporate Employees
- 7 Things to Consider Before Leaving Your Company
- How Are Workers Impacted by Inflation & Rising Interest Rates?
- Lump-Sum vs Annuity and Rising Interest Rates
- Internal Revenue Code Section 409A (Governing Nonqualified Deferred Compensation Plans)
- Corporate Employees: Do NOT Believe These 6 Retirement Myths!
- 401K, Social Security, Pension – How to Maximize Your Options
- Have You Looked at Your 401(k) Plan Recently?
- 11 Questions You Should Ask Yourself When Planning for Retirement
- Worst Month of Layoffs In Over a Year!
- Corporate Employees: 8 Factors When Choosing a Mutual Fund
- Use of Escrow Accounts: Divorce
- Medicare Open Enrollment for Corporate Employees: Cost Changes in 2024!
- Stages of Retirement for Corporate Employees
- 7 Things to Consider Before Leaving Your Company
- How Are Workers Impacted by Inflation & Rising Interest Rates?
- Lump-Sum vs Annuity and Rising Interest Rates
- Internal Revenue Code Section 409A (Governing Nonqualified Deferred Compensation Plans)
- Corporate Employees: Do NOT Believe These 6 Retirement Myths!
- 401K, Social Security, Pension – How to Maximize Your Options
- Have You Looked at Your 401(k) Plan Recently?
- 11 Questions You Should Ask Yourself When Planning for Retirement
- Worst Month of Layoffs In Over a Year!
Rollovers and conversions Rollover of non-Roth funds
If your in-service withdrawal qualifies as a 'eligible rollover distribution,' you may transfer over all or a portion of it tax-free into a traditional IRA or another potential Alcoa plan that accepts rollovers. In general, the majority of in-service withdrawals are eligible for rollover, with the exception of hardship withdrawals and required minimum distributions after age 7012. If your withdrawal qualifies as a qualified rollover distribution, your plan administrator will provide you with a notice (a '402(f) notice') that explains the rollover rules, the withholding rules, and other tax considerations. (Your plan administrator will withhold 20% of the taxable portion of your eligible rollover distribution for federal income tax purposes if you do not rollover the funds immediately to another plan or IRA.)
You can also turn over ('convert') an eligible non-Roth rollover distribution into a Roth IRA. Some 401(k) plans even permit a 'in-plan conversion' in which you can request an in-service withdrawal of non-Roth funds and have them transferred into a Roth account within the same 401(k) plan. In either instance, you will be subject to income tax on the converted amount (less any nontaxable after-tax contributions).
Rollover of Roth funds
If you withdraw money from your Roth 401(k), you can only transfer it over to a Roth IRA or another Roth 401(k)/403(b)/457(b) plan that accepts rollovers. (Once more, hardship withdrawals are unable to be carried over.) But be careful to comprehend how a rollover will affect the taxation of future IRA or plan distributions. For instance, if you transfer over a nonqualified distribution from a Roth 401(k) to a Roth IRA, the Roth IRA's five-year holding period will be used to determine if future distributions from the IRA are tax-free qualified distributions. That is, you will not receive credit for the time these funds were invested in your
Be informed
We advise our Alcoa clients to familiarize themselves with the terms of Alcoa's potential 401(k) plan in order to comprehend their specific withdrawal rights. The summary plan description (SPD) is an excellent starting point. Alcoa will provide you with a copy of the SPD within 90 days of your plan enrollment.
Conclusion
Retirement planning is like a puzzle. Just as a puzzle requires different pieces that fit together to create a complete picture, retirement planning requires a variety of financial and lifestyle considerations that work together to create a fulfilling post-career life. This article offers valuable insights and guidance to help Alcoa workers looking to retire, as well as existing retirees, put the pieces of their retirement puzzle together. From managing debt and creating a budget to investing for the future and planning for long-term care, this article provides a comprehensive framework for achieving a successful and satisfying retirement.
What are the key eligibility requirements for employees to participate in the Pension Plan for Certain Hourly Employees of Alcoa USA Corp, and how do these requirements change if an employee is hired or rehired after April 1, 2022? This question aims to explore the specific criteria that must be met for participation in the plan, providing clarity on both the general eligibility for new employees and any exceptions for those previously employed.
Eligibility Requirements: Employees are automatically eligible for the Pension Plan for Certain Hourly Employees of Alcoa USA Corp if they were hired or rehired before April 1, 2022, have reached age 21, and completed one year of vesting service. Employees hired or rehired on or after April 1, 2022, are not eligible for this pension plan(Alcoa USA Corp_Pension …).
How is the vesting service calculated in the context of the Alcoa USA Corp pension plan, and what implications does it have for an employee considering retirement? Understanding the nuances of how vesting service is accrued and the minimum time required to become vested can significantly impact an employee's retirement planning.
Vesting Service Calculation: Vesting service determines when an employee becomes eligible for pension benefits. Employees become vested after completing five years of vesting service, which includes both periods of pension service and non-pension service such as absences not counted towards pension service. This is crucial for retirement planning, as it ensures employees are entitled to pension benefits even if they leave the company after becoming vested(Alcoa USA Corp_Pension …).
What various retirement options are available to employees of Alcoa USA Corp, and how do these options affect the benefits and payout structure for retiring employees? This question addresses the multiple choices employees face when planning their retirement, including the differences between normal retirement, early retirement, and disability retirement benefits.
Retirement Options: The plan offers normal retirement (at age 65 with five years of vesting service), 60/10 retirement (for employees between 60 and 62 with 10 years of vesting service), and 62/10 retirement (for employees between 62 and 65 with 10 years of vesting service). Disability retirement is also available for those permanently incapacitated with 10 years of vesting service(Alcoa USA Corp_Pension …).
Can you elaborate on the survivor benefits provided under the Alcoa USA Corp pension plan, and what steps need to be taken to ensure that a spouse or partner is eligible for these benefits upon the employee's retirement? This question seeks to examine the protections and financial security afforded to survivors, alongside the required documentation and choices available to employees.
Survivor Benefits: The pension plan provides automatic surviving spouse coverage unless waived by the employee and spouse. Surviving spouse pensions are payable if the employee dies while actively employed and vested in the plan, after retirement, or while receiving a deferred vested pension. The spouse must submit a written application to claim benefits(Alcoa USA Corp_Pension …)(Alcoa USA Corp_Pension …).
What are the specific methodologies used to calculate the regular monthly pension for employees retiring under the Alcoa USA Corp pension plan, and how might these calculations vary based on an employee's age and years of service? This question looks at the complex actuarial factors that influence pension benefits, enhancing employees' understanding of how their retirement income is determined.
Pension Calculation: The regular monthly pension is calculated using a formula based on the employee's pension service and a pension factor in effect when pension service ends. For example, if an employee retires at 65 with 10 years of service, the pension factor might be $57 per year of service. The pension is adjusted based on age and service length(Alcoa USA Corp_Pension …).
In the event of a disability, how does the Alcoa USA Corp pension plan provide support to affected employees, and what are the requirements to qualify for disability retirement benefits? This question emphasizes the importance of understanding disability provisions, ensuring employees are aware of their rights and the circumstances under which they might qualify for benefits.
Disability Retirement: Employees under 62 who are permanently incapacitated with at least 10 years of vesting service qualify for disability retirement. They must be deemed permanently disabled and unable to return to work in a bargaining unit occupation. A medical examination may be required to confirm ongoing eligibility(Alcoa USA Corp_Pension …).
What steps must Alcoa USA Corp employees take to apply for retirement benefits, and what timelines are involved in the processing and payout of these benefits? This question delves into the procedural aspects of retirement applications, aiming to prepare potential retirees for the necessary actions they must undertake.
Retirement Application Process: Employees must file a retirement application with the plan administrator before their desired retirement date. The application can be filed up to 90 days before retirement, and the process typically includes receiving benefit explanations and payment elections within this timeframe(Alcoa USA Corp_Pension …).
How does the Pension Benefit Guaranty Corporation (PBGC) influence the pension benefits received by employees of Alcoa USA Corp, particularly in the context of plan terminations or financial challenges? This question explores the security provided by the PBGC, focusing on its role as a backup for employees’ pension benefits.
Pension Benefit Guaranty Corporation (PBGC): The PBGC provides a safety net for pension benefits in the case of plan termination or financial distress. If the pension plan is underfunded, the PBGC ensures employees still receive pension benefits, although certain limitations may apply(Alcoa USA Corp_Pension …).
What resources and support does Alcoa USA Corp provide to its employees for understanding their pension plan, and how can employees reach out for assistance regarding their retirement options? This question emphasizes the resources available to employees for further education and guidance, ensuring they know where to turn for help.
Resources for Understanding the Plan: Employees can access information about their pension plan and retirement options through the Alight Worklife™ website or by calling the Alcoa benefits helpline. These resources offer guidance on applying for retirement and understanding plan benefits(Alcoa USA Corp_Pension …).
How can employees of Alcoa USA Corp contact the benefits management team to learn more about their specific pension plan details, and what channels are available for inquiries? Understanding the communication channels can empower employees to seek the information they need, facilitating a smoother transition into retirement.
Contacting Benefits Management: Employees can reach out to the benefits management team through the Alight Worklife™ website or by phone at 1-844-31ALCOA. This service provides assistance with pension-related inquiries and retirement applications(Alcoa USA Corp_Pension …).
-2.png)
.webp)