Spending - Retirement Or A Rainy Day

1. When can I retire? Do I have to start taking money out when I retire?
2. Can I get access to the money in my retirement plan before retirement?
3. Can I borrow from the plan?
4. How long can I leave the money in the plan if I don’t need to spend it?

When can I retire? Do I have to start taking money out when I retire?

• you can retire at whatever age you choose - tomorrow, age 50, or age 70; you do not need to start taking distributions when you retire, and our advice is to leave the money in the plan as long as you can
• if you are under 59 ½, you may have to pay a 10% excise tax on what you take out, unless your distributions meet an exemption – if you have little income other than your pension distributions, it may make sense to take distributions, as your income tax will be small
• starting in the year you become 70 ½, you have to start taking Required Minimum Distributions (RMD); if you have a 401k, Profit Sharing, or Frozen Money Purchase type of plan, the starting percentage is 3.65% of what is in the plan for you; this percentage goes up slowly each year, and is multiplied by the amount in the plan for you – so if you turn 70 ½, and have $1,000,000 in the plan, you will be required to take out $36,500 from the plan in that year; if you have a Defined Benefit plan, the RMD is normally 12 times your monthly Accrued Benefit

Can I get access to the money in my retirement plan before retirement?

• if the plan is amended to allow for in-service distributions, you may be able to get access to the money in your retirement plan prior to retirement; it depends, so call us!
• An alternative to taking a taxable distribution is to take a loan from the plan (see below)
• if your plan covers other employees, you will need to make sure that the plan is amended in a nondiscriminatory way to allow access to funds; usually the plan picks an attained age

Can I borrow from the plan?

• the plan can be amended to allow participants to borrow from the plan; the loan outstanding to any one participant is usually limited to the lesser of $50,000 or 50% of the vested benefit
• the loan terms are five years, payable quarterly or monthly, or by payroll deduction, with an interest rate that currently is about 3%, and with principal and interest amortized equally over the period – we do a participant loan document for you

How long can I leave the money in the plan if I don’t need to spend it?

• You have to take the RMD amounts starting at 70 ½; however, you can leave the money in as long as you like; also, you can leave it to your heirs or to any charity – see “Leaving It To Your Heirs”