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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 Nokia. 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 Nokia 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 Nokia 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, Nokia'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 Nokia 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 Nokia may potentially maintain. And, in the majority of 401(k) plans, the employer, such as Nokia, 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 Nokia matching contributions. Hardship withdrawals are not eligible for rollover. Therefore, Nokia 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.
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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 Nokia 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 Nokia clients to familiarize themselves with the terms of Nokia's potential 401(k) plan in order to comprehend their specific withdrawal rights. The summary plan description (SPD) is an excellent starting point. Nokia 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 Nokia 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 unique features and benefits does the Nokia Retirement Income Plan offer to its participants, and how can these benefits be maximized by current employees of Nokia of America Corporation? Additionally, what resources are available for employees to educate themselves about the various aspects of the plan, including eligibility, distribution options, and potential tax implications?
The Nokia Retirement Income Plan offers participants a defined benefit plan designed to provide financial security through retirement by supplementing Social Security and other retirement savings. Benefits can be maximized through strategies like ensuring accurate service records, understanding distribution options such as lump-sum payments or annuities, and consulting financial advisors to align these benefits with long-term retirement goals(Nokia of America Corpor…).
How does participation in the Nokia Retirement Income Plan facilitate financial security in retirement for employees, specifically in terms of pension benefit calculations and options such as lump-sum distributions or annuities? Moreover, what are some strategies that Nokia of America Corporation employees can employ to ensure they are fully prepared to utilize their retirement benefits as they transition towards retirement?
Participation in the Nokia Retirement Income Plan ensures financial security in retirement through pension benefit calculations based on service years and salary history. Employees can choose from options like lump-sum distributions or lifetime annuities. By carefully selecting a distribution option and incorporating it into a broader retirement strategy, employees can optimize financial outcomes(Nokia of America Corpor…).
With respect to changes in personal circumstances, such as marriage or divorce, what provisions does the Nokia Retirement Income Plan have to protect the benefits of employees from Nokia of America Corporation? How can employees navigate the complexities of Qualified Domestic Relations Orders (QDROs) within the context of their pension benefits, and what resources are available to assist them in this process?
The Nokia Retirement Income Plan protects benefits in cases of personal changes such as marriage or divorce through provisions like the Qualified Domestic Relations Order (QDRO). Employees can consult the Nokia Benefits Resource Center for assistance in navigating QDROs to ensure a fair division of benefits. Guidance is available for understanding the QDRO requirements and how they apply to their pension(Nokia of America Corpor…).
What steps must employees take to initiate the commencement of their benefits from the Nokia Retirement Income Plan once they reach retirement age? Furthermore, what are the important considerations employees need to keep in mind regarding the selection of a payment form and any potential impact this may have on their overall financial strategy during retirement?
To initiate pension benefits under the Nokia Retirement Income Plan, employees must submit a claim when they reach retirement age. They should consider factors such as payment form options (lump sum or annuity) and the impact on long-term financial plans. Choosing the appropriate payment form is critical to maximizing retirement income(Nokia of America Corpor…).
How can employees of Nokia of America Corporation ensure their beneficiaries are properly designated under the Nokia Retirement Income Plan, and what implications does this designation have for benefit distribution in the event of their death? Additionally, what steps should employees take to update their beneficiary designations in light of significant life events?
Employees can ensure their beneficiaries are properly designated by updating their beneficiary forms through the Nokia Benefits Resource Center. Proper designation affects how benefits are distributed in the event of their death, and it is crucial to update designations after life events like marriage, divorce, or the birth of a child(Nokia of America Corpor…).
In terms of compliance with federal regulations, how does the Nokia Retirement Income Plan adhere to ERISA guidelines concerning employee benefits, and what rights do employees of Nokia of America Corporation possess under these regulations? Also, how can employees exercise their rights effectively if they encounter issues regarding their pension benefits?
The Nokia Retirement Income Plan complies with the Employee Retirement Income Security Act (ERISA), giving employees the right to receive information about their benefits and hold fiduciaries accountable. If employees face issues with their pension, they can exercise their rights through claims and appeals, with recourse available through legal action if necessary(Nokia of America Corpor…).
How does the Nokia of America Corporation support employees who might be eligible for a disability pension under the Nokia Retirement Income Plan, and what specific eligibility criteria must be met? Additionally, what resources are available to assist employees in understanding this facet of their retirement benefits?
Employees eligible for a disability pension under the Nokia Retirement Income Plan must meet specific criteria, such as proving permanent disability before reaching retirement age. Resources like the Nokia Benefits Resource Center can provide guidance on the eligibility process and required documentation(Nokia of America Corpor…).
What specific actions should an employee of Nokia of America Corporation take when applying for a pension benefit under the Nokia Retirement Income Plan, and what documentation is typically required to streamline this process? Furthermore, in the event of a claim denial, what recourse do employees have to challenge the decision through the plan's appeal process?
When applying for pension benefits, employees should provide documentation such as proof of age and employment history. In case of a denial, they have the right to appeal through the Employee Benefits Committee. If necessary, employees can further appeal to federal courts under ERISA(Nokia of America Corpor…).
How does the pension benefit guarantee from the Pension Benefit Guaranty Corporation (PBGC) apply to employees of Nokia of America Corporation, and what are the limitations of this guarantee in protecting retirement benefits? Additionally, how can understanding these protections help employees make informed decisions regarding their retirement planning?
The Pension Benefit Guaranty Corporation (PBGC) guarantees benefits under the Nokia Retirement Income Plan in case the plan terminates. However, there are limitations, such as caps on benefit amounts. Understanding these protections helps employees make informed decisions about their retirement planning(Nokia of America Corpor…).
How can employees contact the Nokia Benefits Resource Center to gain more information about their benefits and the specific resources available under the Nokia Retirement Income Plan? What are the recommended communication channels and hours for reaching out to ensure timely and effective assistance?
Employees can contact the Nokia Benefits Resource Center through the Your Benefits Resources (YBR) website or by calling the designated phone line. It is recommended to use these channels during business hours (9:00 a.m. to 5:00 p.m. ET) for timely assistance with pension-related questions(Nokia of America Corpor…).
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